FROM THE FILES OF THE FBI 222
[newspaper article, undated, unnamed newspaper]
Scientologists Lose Tax-Exempt Status
The Founding Church of Scientology of Washington, D.C. (_The AMA News_,
Sept. 2, 1968) has lost its tax-exempt status because a federal court says
its activities were too commercial.
Donald E. Lane, trial commissioner of the U.S. Court of Claims in
Washington, ruled that the church received substantial income from its
"processing and auditing" services, and that the value of these services
was over and above the organization's religious and spiritual aspects.
[?]overnment officials have indicated the decision would signal the end of
the tax-exempt status which has been granted to various alleged
"personality development" centers for Scientology across the country.
Refund Sought: The federal claims court ruling resulted from a suit filed
by the Founding Church of Scientology seeking a tax refund for 1956.
A review by the full claims court is scheduled, with arguments expected in
Commissioner Lane's opinion rejected the tax-exempt arguments of the
organization, noting that the Founding Church was organized in 1955 and
incorporated "to act as a parent church for the propagation of a religous
faith known as Scientology,' and to act as a church for the religious
worship of faith."
Spirit Immortal: Lane added that Scientologists "believe that the spirit
is immortal and that it receives a new body upon the death of the body in
which it resides. They also believe that in the course of various lives
the spirit is inhibited by detrimental aberrations' or engrams' which
result from misdeeds or unpleasant experiences."
The commissioner explained that the objective of Scientology is to
counteract this burden through processing, also called auditing. He said
the goal of Scientology "is for the individual to advance through various
levels of accomplishment leading to the state of clear,' and ultimately to
become and operating thetan' (spirit)."
The report states that founder L. Ron Hubard was paid a salary of $125 a
week and an additional fee of $125 a week, plus 10% of the gross income of
"Persons coming to plaintiff (the Founding Church) for processing were
usually required to sign a contract for a stated amount of processing,"
the commissioner said. "The normal contract covered 25 hours of
processing at a rate of $20 per hour."
6% Interest: He said when a person was unable to pay cash, the center
would have the individual sign a note bearing 6% annual interest plus 25%
There was advertising under "Personality Development" and "Personnel
Consultants" in the yellow pages of telephone directories, the opinion
said, in addition to newspaper advertisements.
The Hubbard E-Meter, described by Lane as essential to the practice of
Scientology, costs $12.50 to manufacture, but the selling price was $125
to $144, the opinion said. Lane said every auditor was expected to
acquire the meter.
A federal court jury ruled in 1967 that the meter was a misbranded medical
device, and a federal judge ordered destruction of the devices.
A U.S. Treasury Dept. spokesman said the legal action in the Washington
claims court was the first U.S. litigation from a tax standpoint involving
California previously had permitted a tax exempt status to Scientologists
in that state, but this has been revoked.