OPERATION CLAMBAKE: SCIENTOLOGY COURT FILES

Part of a public library containing court papers related to lawsuits involving Scientology in some way. Collected to help lawyers and critics of Scientology in future lawsuits from or against this cult. Please report back if this has been of help, or send new contributions to the collection. Thanks. Andreas Heldal-Lund (heldal@online.no)




          UNITED STATES of America, Plaintiff-Appellant/Cross-Appellee,
                                       v.
      CHURCH OF SCIENTOLOGY WESTERN UNITED STATES and Cal Cole, President,
                     Defendants-Appellees/ Cross-Appellants.
          UNITED STATES of America, Plaintiff-Appellant/Cross-Appellee,
                                       v.
   CHURCH OF SCIENTOLOGY INTERNATIONAL and Lynn Farny, Secretary, Defendants-
                           Appellees/Cross-Appellants.
                 Nos. 91-55479, 91-55481, 91-55489 and 91-55491.
                         United States Court of Appeals,
                                 Ninth Circuit.
                        Argued and Submitted May 6, 1992.
                             Decided Aug. 19, 1992.
  Internal Revenue Service (IRS) petitioned for enforcement of summons against
 church.  The United States District Court for the Central District of
 California, Harry L. Hupp, J., granted enforcement in part.  IRS appealed and
 church cross-appealed.  The Court of Appeals, Schroeder, Circuit Judge, held
 that:  (1) IRS was not entitled to enforcement of summons with respect to
 categories which did not fall directly and logically within proper scope of its
 investigation;  (2) IRS conducted its examination for legitimate purpose;  (3)
 IRS was not required to accede to church's demands that it replace agents
 assigned to tax inquiry;  and (4) IRS was entitled to enforcement of summons
 against church with respect to documents which could logically be expected to
 give IRS overview of flow of money into and out of the organization, to shed
 light on possible commercial purposes.
  Affirmed.

 [1] INTERNAL REVENUE
 Church Audit Procedures Act (CAPA) which allows Internal Revenue Service (IRS)
 to demand documents only "to extent necessary" to determine tax liability or
 tax-exempt status, requires IRS to show actual necessity for documents it
 seeks, and not merely an allegation of relevance.  26 U.S.C.A. ss 7611,
 7611(b)(1)(A, B).
 See publication Words and Phrases for other judicial constructions and
 definitions.

 [2] INTERNAL REVENUE
 Under Church Audit Procedures Act (CAPA) government's allegation that document
 may be useful shifts burden to taxpayer to show otherwise.  26 U.S.C.A. s
 7611.

 [3] INTERNAL REVENUE
 Though criteria by which district court must evaluate tax summons directed at
 church are stricter than required of standard tax summons, Court of Appeals
 applies same standard of review to the latter, and decides whether district
 court has committed clear error in its determination that document or
 category of documents is "necessary."  26 U.S.C.A. ss 501(c)(3),
 7611(b)(1), (a)(3)(B)(i)(I, II).

 [4] INTERNAL REVENUE
 Internal Revenue Service's (IRS) inquiry into church's possible commercial
 purposes and whether profits inured to benefit of individuals was for a proper
 purpose under Church Audit Procedures Act (CAPA).  26 U.S.C.A. ss
 501(c)(3), 7611(b)(1), (a)(3)(B)(i)(I, II).

 [5] INTERNAL REVENUE
 Internal Revenue Service (IRS) summons on church was unenforceable to extent it
 sought documents beyond stated scope of investigation or documents which
 duplicated information which district court had already ordered produced.
 26 U.S.C.A. s 7611(b)(1).

 [6] INTERNAL REVENUE
 Internal Revenue Service (IRS) did not act in bad faith in conducting
 investigation of church under Church Audit Procedures Act (CAPA), despite
 church's allegation of nationwide offensive against its organizations and
 individuals.  26 U.S.C.A. s 7611.

 [7] INTERNAL REVENUE
 Internal Revenue Service (IRS) was not required to accede to church's demands
 that it replace agents assigned to tax inquiry.

 [8] INTERNAL REVENUE
 Internal Revenue Service (IRS) was entitled to enforcement of summons against
 church with respect to documents which could logically be expected to give IRS
 overview of flow of money into and out of the organization, to shed light on
 possible commercial purposes.  26 U.S.C.A. s 7611.
  *716 John A. Dudeck, Jr., Dept. of Justice, Washington, D.C., for
 plaintiff-appellant/cross-appellee.
  Eric M. Lieberman, Hillary Richard, Rabinowitz, Boudin, Standard, Krinsky &
 Lieberman, P.C., and Michael Lee Hertzberg, New York City, for defendants-
 appellees/cross-appellants.
  Appeal from the United States District Court for the Central District of
 California.

  Before TANG, SCHROEDER and BEEZER, Circuit Judges.

  SCHROEDER, Circuit Judge:
                                 I. Introduction
  These consolidated appeals represent the latest round in the Internal
 Revenue Service's legal struggle to determine the tax status and tax liability
 of the various entities which comprise the Church of Scientology.  The struggle
 has a long history in the federal courts. [FN1]  This matter arises out
 *717 of parallel cases involving two separate Scientology organizations:
 the Church of Scientology Western United States (CSWUS) and the Church of
 Scientology International (CSI).  The district court treated the CSWUS case as
 the lead case and the CSI case as related.  Since most of the issues and much
 of the relevant background are identical, we will do likewise.

      FN1. See, e.g., Hernandez v. Commissioner, 490 U.S. 680, 109 S.Ct.
     2136, 104 L.Ed.2d 766 (1989) (payments made for spiritual evaluation and
     training services provided by Scientology not deductible as contributions
     or gifts within the meaning of 26 U.S.C. s 170);  Church of
     Scientology of California v. IRS, 484 U.S. 9, 108 S.Ct. 271, 98 L.Ed.2d
     228 (1987) (district court properly refused church's extensive FOIA request
     to produce all tax returns which mention the church);  United States v.
     Church of Scientology of Boston, Inc., 933 F.2d 1074 (1st
     Cir.1991) (addressing issues nearly identical to those raised by this
     appeal);  United States v. Zolin, 905 F.2d 1344 (9th
     Cir.1990) (conditional enforcement of IRS request seeking materials in the
     possession of Los Angeles County Superior Court for use in tax
     investigation affirmed on the grounds that material evidenced an intent to
     defraud IRS and, therefore, came within the crime-fraud exception to the
     attorney-client privilege), cert. denied, 499 U.S. 920, 111 S.Ct. 1309,
     113 L.Ed.2d 244 (1991);  Church of Scientology of California v.
     Commissioner, 823 F.2d 1310 (9th Cir.1987) (IRS properly denied church tax
     deductible status under 26 U.S.C. s 501(c)(3)), cert. denied, 486
     U.S. 1015, 108 S.Ct. 1752, 100 L.Ed.2d 214 (1988);  Founding Church of
     Scientology v. United States, 412 F.2d 1197 (Ct.Cl.1969) (tax-exempt status
     of Scientology entity revoked), cert. denied, 397 U.S. 1009, 90 S.Ct.
     1237, 25 L.Ed.2d 422 (1970);  Church of Spiritual Technology v. United
     States, 26 Cl.Ct. 713 (Cl.Ct. June 29, 1992) (denying tax-exempt status to
     entity organized to archive collected writings of L. Ron Hubbard on grounds
     that it served the non-tax-exempt purposes of related Scientology
     entities).
     The conflict has also occasionally involved other branches of the
     government.  See, e.g., Founding Church of Scientology of Washington,
     D.C., Inc. v. Webster, 802 F.2d 1448 (D.C.Cir.1986) (church's action
     against the FBI alleging an "extensive campaign of government harassment"
     dismissed for failure to comply with a discovery order), cert. denied,
     484 U.S. 871, 108 S.Ct. 199, 98 L.Ed.2d 150 (1987);  Church of
     Scientology of California v. Foley, 640 F.2d 1335 (D.C.Cir.) (per curiam)
     (en banc) (statute of limitations barred case seeking civil damages against
     employees of the Department of Labor, IRS and Department of State for
     allegedly disseminating false information in connection with the visa
     applications of foreign church members), cert. denied, 452 U.S. 961, 101
     S.Ct. 3110, 69 L.Ed.2d 972 (1981).

  In this appeal, we are called upon to look for the first time in this circuit
 at the provisions of the statute enacted in 1984 setting forth the procedures
 the government must follow and the standards it must meet when conducting tax
 inquiries and examinations of churches.  The Church Audit Procedures Act
 (CAPA), section 1033 of the Tax Reform Act of 1984, Pub.L. No. 98-369, 98 Stat.
 1034, codified at 26 U.S.C. s 7611, provides that before the IRS may begin
 an inquiry into the tax status of any organization claiming to be a church, the
 Service must satisfy certain prerequisites.  Among other things, it must
 articulate a reasonable belief in the need for an investigation and provide
 special notice to the church.  See 26 U.S.C. s 7611(a)(1).  Further, the
 statute circumscribes the scope of examinations, allowing the IRS to demand
 documents only "to the extent necessary" to determine tax liability or tax-
 exempt status.  See 26 U.S.C. ss 7611(b)(1)(A) & (B).
  The principal legal issue in this case is the correct interpretation and
 application of this "to the extent necessary" restriction.  Before the district
 court the IRS contended that, properly interpreted, this provision places no
 greater burden upon it in a church summons enforcement proceeding than the
 burden imposed in a run-of-the-mill summons enforcement under United States
 v. Powell, 379 U.S. 48, 57, 85 S.Ct. 248, 254-55, 13 L.Ed.2d 112 (1964) (IRS
 need only allege documents "may be relevant" to a legitimate purpose).  The
 defendant churches argued that section 7611 imposes upon the IRS the burden
 of showing actual necessity for the documents it seeks, not merely alleging
 relevance as required under Powell.  As to the application of the standard
 in these specific cases, the churches contended that the IRS had failed with
 respect to each and every document category sought in the summonses to
 discharge this higher burden.  They also argued that bad faith on the part of
 the IRS constituted a complete defense to the summons actions.
  The district court held that there was no IRS bad faith but agreed with the
 churches that the statute requires more than a mere allegation that the
 documents the IRS seeks to examine are relevant to an appropriate IRS inquiry.
 Concluding that some but not all of the document categories sought by the IRS
 were necessary to its inquiries, the district court ordered partial enforcement
 of the summonses.  The IRS appealed the district court's decisions and the
 churches cross-appealed.
  We affirm the district court in every particular.  It properly held
 that, to give the statutory language full effect, something more than the mere
 allegation of relevance must be required of the IRS.  This outcome accords with
 that reached by the only other circuit to confront the question of CAPA's
 proper interpretation (not coincidently in a case involving another Scientology
 entity).  See United States v. Church of Scientology of Boston, Inc., 933
 F.2d 1074, 1076-79 (1st Cir.1991).  We also affirm the district court's
 conclusion that these IRS inquiries have an appropriate purpose and are not the
 product of bad faith.  Finally, we hold that the court properly applied the
 higher standard required by section 7611 when it determined that the IRS was
 entitled to only partial enforcement of the summonses.
                        II. Background of the CSWUS case
  A certain amount of historical detail is required to appreciate the full
 flavor of this *718 litigation and the nature of the issues presented to the
 district court and to this court.  Our principal focus is on CSWUS and
 throughout this opinion, the term "the Church" will refer to CSWUS.  Since the
 material facts of the two cases addressed in this appeal are almost identical,
 however, this background discussion is relevant to the CSI case as well.
  CSWUS was granted tax-exempt status in 1980.  At the time, it was known as the
 Church of Scientology of San Diego and was one of several entities subordinate
 to the former umbrella organization of Scientology, the Church of Scientology
 of California.  The IRS alleges that, following the 1984 decision of the Tax
 Court to deny tax-exempt status to the so-called "mother church," see Church
 of Scientology of California v. Commissioner, 83 T.C. 381 (1984), aff'd, 823
 F.2d 1310 (9th Cir.1987), cert. denied, 486 U.S. 1015, 108 S.Ct. 1752, 100
 L.Ed.2d 214 (1988), many of the functions and operating units of that umbrella
 organization were moved into the Church of Scientology of San Diego, which
 ultimately became CSWUS.  Following the 1988 denial of tax-exempt status to
 three other Scientology entities (including CSI), the IRS turned its attention
 upon CSWUS to determine whether changes in church organization had affected
 CSWUS's tax-exempt status.
  On November 23, 1988, pursuant to the requirements of section 7611, the IRS
 sent CSWUS a Church Tax Inquiry Letter, seeking answers to questions of concern
 to the Service.  The Church submitted written responses to these questions
 which apparently failed to allay the IRS's concerns.  Consequently, the IRS
 sent CSWUS a Notice of Church Examination.  Included in the Notice was an
 invitation to representatives of CSWUS to come into IRS offices for a
 conference in hopes that a full-fledged church tax examination might be
 avoided.  The statute requires such an invitation.  26 U.S.C. s
 7611(b)(3)(A)(iii).  The Church initially requested the conference.  When it
 learned which examining agents the IRS had assigned to the case, however, it
 said it would not participate in the conference unless the agents were
 replaced.  When the IRS declined to reassign the agents, the Church refused to
 attend the conference.
  After the date for the conference had passed, the IRS informed CSWUS
 that it still believed an examination was necessary and requested CSWUS to
 produce voluntarily certain documents for inspection.  The Church notified the
 IRS that it would not produce any of the requested documents because the IRS
 had "failed to comply with the substantive and procedural requirements of 26
 U.S.C. s 7611," and because CSWUS officials believed that the Church would not
 receive fair and objective treatment from the agents assigned to the
 examination.
  On December 20, 1989, the IRS issued the summons which is the subject of this
 case, ordering the Church to produce documents in 47 categories for the years
 1985 through 1987.  The Church again refused and the IRS petitioned the
 district court to enforce the summons, submitting declarations which asserted,
 in conclusory fashion, that the elements required under United States v.
 Powell had been met and that the summoned documents were "relevant and
 necessary" to the examination of the Church and determination of whether it was
 entitled to tax-exempt status.
  During an initial show cause hearing on the merits of the summons, the
 district court confronted two sets of issues.  First, the court addressed
 Church allegations that improper prejudice and bad faith tainted the entire
 inquiry.  Following a brief evidentiary hearing, the district court found that
 the process had not been infected by an improper animus.  The court concluded
 that,
   after hearing the testimony of [the responsible IRS agent], the court finds
 that there is no prejudice which would affect the proper carrying out of his
 duties.  In short, the problem of the alleged "prejudice" of the IRS agents is
 a molehill which has been made into a mountain.
  The second issue addressed at that hearing was whether IRS declarations that
 the documents sought were relevant and necessary met the requirements for
 enforcement *719 of the summons.  The court ruled that section 7611
 imposes a higher burden upon the IRS than Powell alone and that the
 affidavits offered in support of the summons were insufficient to meet the
 necessity standard:
   In this court's opinion, 26 U.S.C. s 7611 requires more than a showing of
 relevance, as was the standard under Powell ... and its line of cases for
 non-church IRS investigations....  The need for the investigation may put
 limits on the breadth of what could be considered "necessary", but there would
 still need to be shown why particular categories of documents are "necessary"
 to carry out a particular investigation.  The IRS, apparently believing that
 such a showing is not a prerequisite for an order enforcing a summons, has not
 attempted to make such a showing here.  Thus, the continuance [granted today]
 is to allow such a showing to be made.
  In the several months the court granted the IRS to expand on the showing of
 necessity, the IRS prepared and submitted a supplemental declaration which
 addressed, category-by-category, the documents the IRS sought and the general
 rationale behind each request.  The supplemental declaration urged the court to
 conclude that each category was necessary.  The Church continued to maintain
 that "absolutely nothing" the IRS sought was necessary for the purposes of its
 inquiry.
  After reviewing these submissions, the district court opined that, "the
 additional declarations and briefing has not been of great aid to the court."
 The IRS, the court observed, "is neither accustomed [to] nor comfortable" with
 the idea of showing necessity when, "in all other areas of their work, they are
 entitled to see anything remotely relevant."  The district court found the
 Church's extreme position to be equally unilluminating.  The district court
 therefore undertook its own analysis which it described as follows:
   The court has examined each description of the category of documents and
 measured the same against the purposes of the examination [i.e., whether the
 Church has a substantial nonexempt commercial purpose and whether net earnings
 of the church inure improperly to the benefit of individuals]....  The court
 believes that "necessity" means that something more than relevancy must be
 present.  While the documents must be relevant, there must be some showing that
 they contain the type of information which has a relation to the purposes of
 the examination set forth.
  Applying these criteria, the court found certain categories of documents to
 be "necessary to the permissible scope of the examination" and therefore
 ordered these document categories to be produced.  The court denied enforcement
 as to the balance of the categories.
  From this order the IRS appealed, alleging that the district court erred in
 demanding too great a showing of "necessity," that the court misapplied the
 accepted burden of proof rules, and that, even under the court's own standard,
 the summons should have been fully enforced.  The Church cross-appealed,
 challenging the district court's finding that the tax inquiry was being
 conducted for a proper purpose, alleging that it was entitled to a full
 evidentiary hearing on its charges of bad faith and that the summons, under the
 standard articulated by the district court, should have been denied in its
 entirety.
                     III. The IRS's Appeal in the CSWUS case
  [1] The IRS's interpretation of section 7611 would require us to read out
 of the church audit provisions the special protections which were the obvious
 intent of Congress.  The Code provides that a church examination may be made
 only
   (A) in the case of church records, to the extent necessary to determine the
 liability for, and the amount of, any tax imposed by this title, and
   (B) in the case of religious activities, to the extent necessary to determine
 whether an organization claiming to be a church is a church for any period.
  26 U.S.C. s 7611(b)(1).
  The government contends that the term "to the extent necessary" here should be
 *720 defined to mean "appropriate and helpful," or "possibly relevant" in
 accordance with the interpretation of the word "necessary" as used in other
 sections of the Internal Revenue Code.  See Commissioner v. Tellier, 383
 U.S. 687, 689, 86 S.Ct. 1118, 1119-20, 16 L.Ed.2d 185 (1966) (a "necessary"
 expense for purposes of s 162 is one that is "appropriate and helpful");
 Powell, 379 U.S. at 53, 85 S.Ct. at 252-53 (requirement under s 7605 that
 taxpayer be notified in writing that additional audit is "necessary" imposes no
 duty to demonstrate "probable cause" or other similar showing).  It is clear,
 however, that the meaning of "necessary" in this context is something more
 than "possibly relevant."  The government's argument ignores the fact that the
 only purpose of section 7611(b)(1) is to articulate a restriction upon the
 scope of the government's inquiry.  "It is our duty 'to give effect, if
 possible, to every clause and word of a statute,' "  United States v.
 Menasche, 348 U.S. 528, 538-39, 75 S.Ct. 513, 520, 99 L.Ed. 615
 (1955) (quoting Montclair v. Ramsdell, 107 U.S. 147, 152, 2 S.Ct. 391, 394-
 95, 27 L.Ed. 431 (1883)).  To read section 7611(b)(1) as imposing no special
 duty would reduce the provision to a nullity.  Our observation about the intent
 of the statute is further bolstered by the legislative history which shows that
 the provisions were specially enacted to add protections for churches from
 possibly unfounded or overly intrusive tax examinations.  See 130 Cong.Rec.
 S4486 (April 12, 1984) (comments of bill author Senator Grassley) (CAPA was
 "drafted to be certain churches are protected from unfounded examinations").
 We therefore agree with the First Circuit that the IRS has failed to overcome
 the "formidable obstacles" which stand in the way of our accepting the
 Service's "counter intuitive" interpretation of the word "necessary."
 Church of Scientology of Boston, 933 F.2d at 1076-77.
  [2] The government also argues that the district court misplaced
 established burdens of proof when it determined that the IRS failed to
 demonstrate that certain categories of documents were not necessary to its
 investigation.  The government's contention amounts to a restatement of its
 position that it fully satisfied its initial burden by merely alleging
 necessity of the documents and that the Church, for its part, failed to sustain
 the burden of proving that the documents were neither "appropriate" nor
 "helpful."  Under Powell, the government's allegation that a document may be
 useful shifts the burden to the taxpayer to show otherwise.  The IRS argues
 that the adoption of a stricter requirement under section 7611 will cripple
 its investigative abilities because, so interpreted, the statute would require
 the IRS "to show with swearing certainty, before receiving documents, that the
 summoned documents would significantly help the investigation."  The government
 overdramatizes the burden.  As the outcome of this case demonstrates, a court
 can reasonably discern that some documents are necessary to the investigation
 of certain ends while others are not.  We conclude that Congress intended to
 limit the summons power in cases involving churches to those necessary
 documents.  Thus, under section 7611, the government is required to make a
 greater showing in order to establish its prima facie case.  Our interpretation
 does not change the burden scheme, it merely heightens the initial showing
 required of the IRS.
  Finally, the government argues that, if we disagree with its principal legal
 contentions on the interpretation of the statute, we must nevertheless hold
 that the district court erred in denying enforcement of the summons with
 respect to certain categories of documents which, the IRS contends, would have
 been relevant to legitimate avenues of investigation.  In order to assess the
 validity of the government's position that the documents sought were
 "necessary," we must look to the scope of that investigation.  But first, we
 turn briefly to the appropriate standard for our review of the district court
 order.
  [3] In Ponsford v. United States, 771 F.2d 1305 (9th Cir.1985), this
 court held that the questions before the district court in the standard summons
 enforcement proceeding--"[w]hether there is a relationship *721 between the
 material sought and the investigation, and whether the IRS already has the
 material that it is seeking in its possession"--are factual inquires which we
 must review for clear error.  Id. at 1308.  Though the criteria by which the
 district court must evaluate a tax summons directed at a church are stricter
 than required of a standard tax summons, the nature of the district court's
 inquiry is the same, i.e., to determine the relationship of the information
 sought to the purpose of the investigation.  We will therefore apply the same
 standard of review and decide whether the district court has committed clear
 error in its determination that a document or category of documents is
 "necessary" within the meaning of 26 U.S.C. s 7611(b)(1).
  In its order partially enforcing the summons, the district court
 analyzed the documents sought by the IRS with reference to the aims set out by
 the IRS in its contacts with the Church.  To initiate a church tax inquiry, the
 IRS is required to send a Church Tax Inquiry Letter which, among other things,
 must explain the concerns which give rise to the inquiry and set out its
 general subject matter.  26 U.S.C. s 7611(a)(3)(B)(i)(I) & (II).  In his
 Church Tax Inquiry Letter of November 23, 1988 to CSWUS, the IRS Regional
 Commissioner set out the following concerns:
   1. You are operated for a substantial nonexempt commercial purpose because
 your activities assist other organizations to maximize sales of goods and
 services associated with the practice of Scientology;  and 2.  You are operated
 for the benefit of private individuals and your net earnings inure to the
 benefit of private individuals.
  [4] As we noted in Church of Scientology of California v. Commissioner,
 823 F.2d 1310 (9th Cir.1987), cert. denied, 486 U.S. 1015, 108 S.Ct. 1752,
 100 L.Ed.2d 214 (1988), churches are tax exempt under 26 U.S.C. s 501(c)(3)
 only if their purposes are religious (as opposed, for example, to commercial)
 and "no part of their net earnings inure to the benefit of private
 individuals....  The sole beneficiary of the church's activities must be the
 public at large."  Id. at 1316.  The IRS's inquiry into the Church's
 possible commercial purposes and whether profits inure to the benefit of
 individuals is, thus, plainly for a proper purpose.
  [5] Although the district court did not explain, category-by-category, its
 reasons for excluding certain categories of documents from enforcement, even a
 cursory review of the order reveals that the material sought by the IRS in
 those categories for which enforcement was denied contained documents beyond
 the stated scope of investigation, or documents which duplicated information
 which the district court had already ordered produced.  The district court
 denied enforcement, for example, of categories which the IRS sought in order to
 trace the flow of funds within the Church or to discover the identity of
 sources of Scientology income.  These were not relevant to inurement, which
 entails removing funds from the Church to individuals.  To the extent these
 categories may have been relevant to discerning a commercial purpose, they
 duplicated information available to the IRS in other documents (such as those
 detailing the sale of all goods and services).
  The scope of the investigation as envisioned by the district court was
 proper.  The district court did not err when it declined to enforce the summons
 with respect to categories which did not fall directly and logically within
 this proper scope.
                          IV. The Church's Cross-Appeal
  The issues raised by the cross-appeal of CSWUS are similarly without merit.
 The Church charges that the district court erred in ruling that the IRS is
 conducting its examination for a legitimate purpose.  The Church argues that it
 should have been granted discovery and was entitled to a full evidentiary
 hearing on IRS methods and motives.  Finally, the Church also takes exception
 to the various categories for which the district court granted enforcement of
 the summons, arguing that none of the categories granted should have been
 enforced.
  [6] *722 The district court examined each aspect of the process
 followed by the IRS pursuant to section 7611 and found nothing to suggest
 bad faith.  The district court heard testimony from IRS officials, including
 the District Commissioner, regarding the purpose of the IRS's investigation.
 Properly relying on the procedure for investigating the Church's allegations of
 bad faith which had been upheld by the Ninth Circuit on two prior occasions,
 see United States v. Author Servs., Inc., 804 F.2d 1520 (9th Cir.1986),
 amended, 811 F.2d 1264 (9th Cir.1987), and United States v. Zolin, 809
 F.2d 1411, 1416 (9th Cir.1987), aff'd in relevant part, 491 U.S. 554, 109
 S.Ct. 2619, 105 L.Ed.2d 469 (1989), the district court reviewed the evidence
 and denied the Church's motion for discovery and an extended hearing.  The
 district court found that the evidence which, according to the Church, proves
 the existence of a "nationwide offensive against Scientology organizations and
 individuals" in fact demonstrates nothing more than a nationally coordinated
 effort to correctly characterize the Scientology entities and verify their tax
 liability.  The district court's findings were not clearly erroneous.
  [7] In addition to challenging the scope of and motive behind the entire tax
 inquiry, the Church also complains that the IRS did not properly fulfill the
 conference duty imposed by the Code because, although it offered to confer, it
 refused to accede to the Church's demands that it replace the agents assigned
 to the case.  With respect to this matter, we agree with the district court's
 observation that:
   the church could no more have a veto on who does IRS's work for it than the
 IRS could veto the participation of church people because it believes that such
 people are prejudiced against the IRS.
  [8] Finally, applying the standard articulated above to the district court's
 factual determination of necessity, we find no clear error in the decision to
 allow enforcement of certain document categories.  In its order, the district
 court granted enforcement with respect to documents which could logically be
 expected to give the IRS an overview of the flow of money into and out of the
 organization.  Specifically, to shed light on possible commercial purposes, the
 court granted access to documents detailing the range of goods and services
 offered by the Church, how they are priced and to whom provided.  In addition,
 to expose possible methods of removing profit from the Church, the court
 granted enforcement with respect to documents that would allow the IRS to track
 and characterize all funds leaving the organization, whether identified as
 costs, charges, fees, salaries, rentals, leases or otherwise and regardless of
 whether the amounts were paid to another Scientology entity, to Scientology-
 related individuals or to someone outside of Scientology.
  In conclusion, neither party argues persuasively that the district court erred
 in its partial enforcement of the summons in this case.  In fact, the district
 court admirably balanced the competing concerns of disclosure to facilitate
 proper IRS investigations on the one hand and protection of churches in their
 special status under CAPA on the other.
             V. Companion Case:  Church of Scientology International
  In the appeals from the district court's decision in the CSI case, the
 positions of the parties on the issues of statutory interpretation are the same
 as in the CSWUS case and our resolution is the same.  Factually, CSI's
 situation differs in that CSI is not a tax-exempt organization.  The specific
 concerns addressed by the Regional Commissioner in his Church Tax Inquiry
 Letter to CSI are thus slightly different:
   The [IRS's] information supports a reasonable belief that:  1. You are
 operated for a substantial commercial purpose because your activities assist
 other organizations to maximize sale of goods and services associated with the
 practice of Scientology;  and 2. Your earnings from these activities may not be
 fully reported.
  Based on these concerns, the district court granted enforcement of the summons
 only for documents likely to reveal relevant *723 information unavailable
 from other sources.  The district court required CSI to produce documents
 broadly aimed at characterizing "all funds received" to allow the IRS to verify
 CSI's earnings, but denied documents calculated to reveal how CSI distributes
 its profits.  Such documents are irrelevant since inurement is not an issue for
 a non-tax-exempt organization.  As with the CSWUS summons, the district court
 was particularly careful to deny highly intrusive requests for sensitive
 internal documents when less sensitive documents could provide the same
 information.  As with the CSWUS summons, we see no error in the district
 court's enforcement of the CSI summons.
                                 VI. Conclusion
  We reject the contentions of the appellants and the cross-appellants in both
 of the cases under consideration here.  The disposition of the district court
 in each is AFFIRMED.

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