The UNITED STATES, Defendant.

                                  No. 581-88T.

                           United States Claims Court.

                                  Oct. 2, 1989.

  Church brought suit seeking a declaration that the Commissioner of Internal

 Review wrongfully denied its initial application for exempt status.  The Claims

 Court, Bruggink, J., held that Tax Court rule defining administrative record

 presumptively excluded third-party materials.

  Order in accordance with opinion.


 Tax Court rule defining administrative record presumptively excluded third-

 party materials.  Tax Court Rule 210(b)(11), 26 U.S.C.A. foll. s 7453.

  *247 Monique E. Yingling, Washington, D.C., for plaintiff.  Thomas C.

 Spring, of counsel.

  David Gustafson, with whom was Asst. Atty. Gen. Shirley D. Peterson,

 Washington, D.C., for defendant.


  BRUGGINK, Judge.

  The Church of Spiritual Technology ("CST") brings this suit for

 declaratory judgment under section 7428 of the Internal Revenue Code of

 1954 ("I.R.C."), 26 U.S.C. s 7428.  CST filed its complaint on October 6,

 1988 following an adverse exemption ruling by the Internal Revenue Service

 ("IRS").  Plaintiff seeks a declaration that the Commissioner wrongly denied

 its initial application for exempt status under section 501(c)(3) of the

 I.R.C., 26 U.S.C. s 501(c)(3) (1982).

  The record filed by defendant on April 20, 1989 fills eleven boxes.  It

 includes CST's application materials dating back to its initial application in

 1983, IRS communications with CST from the same time period and CST on-site

 review materials.  On May 12, 1989, plaintiff filed a motion excepting to the

 record, as filed.  CST's motion requests the following:

  1) to include as part of the administrative record four boxes of documents

 which will be referred to hereafter as "the Commercialism Submission";

  2) to revise the description in the record index;

  3) to exclude materials CST alleges are third-party materials;

  4) to include documents misplaced by the defendant;

  5) to substitute original documents for defendant's inadequate copies;  and

  6) to include documents relating to the IRS on-site review.

  The issue has been fully briefed.  Oral argument was held on August 22, 1989.

 After argument the court denied the motion insofar as CST sought to exclude

 what CST refers to as third-party materials, specifically, *248 newspaper

 articles and court opinions sent by the IRS to CST for comment.  Also during

 argument, defendant agreed to remedy the other deficiencies complained of with

 the exception of item one above--failure to include the Commercialism

 Submission.  As to that matter, the parties were afforded the opportunity to

 file additional affidavits.  Plaintiff filed the affidavit of William C. Walsh,

 attorney for CST during the relevant administrative phase.  Defendant elected

 not to file an additional affidavit and responded by brief to the new

 assertions.  After consideration of the submissions and oral argument, the

 court concludes that the motion should be denied insofar as it seeks inclusion

 of the Commercialism Submission.

                              I. FACTUAL BACKGROUND

  The facts are drawn from uncontested parts of the record filed by defendant,

 and, for purposes of this motion, from the motion papers.  They are largely

 uncontested.  On certain key points, however, the parties disagree.  The

 disagreements relate primarily to how the parties characterize events

 surrounding the post-protest conference of right.  In any event, solely for

 purposes of this motion, the court will presume that plaintiff's version of

 disputed events is correct.

  CST is a church of Scientology.  At the time CST had its exemption application

 pending, two other churches of Scientology--the Church of Scientology

 International ("CSI") and the Religious Technology Center ("RTC")--also had

 exemption applications pending under section 501(c)(3).  Each had applied

 separately.  CST stated that its application was "not a group application" and

 should be considered solely on the basis of information furnished by it.

  On January 7, 1986, the IRS issued virtually identical initial adverse

 rulings to the three applicants.  In this initial ruling, the IRS stated, among

 other things, that CST would not be considered in isolation from other

 organizations within the Church of Scientology;  that CST exercises a decisive

 influence over other such organizations;  that CST was not operated for exempt

 purposes because it operated in a commercial manner;  and that CST had failed

 to provide requested information necessary for a ruling.  On July 3, 1986, each

 party filed under separate cover what plaintiff refers to as identical

 protests.  CST's protest consists of 251 items which comprise Part II of the

 Administrative Record.  None of those items are at issue in this motion.

  The IRS in an October 10, 1986 letter granted CST's request for a conference.

 In a letter dated November 21, 1986, CST's representative wrote the IRS that,

 in confirmation of two telephone conversations, there were to be two

 conferences, one dealing with issues common to the three entities, the other

 dealing exclusively with CST.  In fact, only one conference, lasting six days,

 was ultimately held.  In a telephone conversation between CST's representative

 and the IRS on December 10, 1986, the IRS scheduled a post-protest conference

 of right.  One of the items the IRS proposed for discussion was whether CST's

 operation furthers nonexempt commercial interests.  The IRS later notified CST

 that the conference would include CSI and RTC.

  On January 14, 1987, representatives of CST, CSI and RTC met with IRS

 officials for a six-day conference to clarify the issues.  In his affidavit for

 the plaintiff, William C. Walsh recites that he attended the conference of

 right, and participated in the preliminary arrangements.  He recites that

 during the conference, IRS representatives discussed their belief that CST

 controlled or influenced other churches of Scientology.  He also states that

 CST's representative stated that there was an issue as to whether CST's

 activities would be considered exclusively on the basis of its own activities.

 IRS representatives responded that they believed CST's application was "tied

 into" the applications of CSI and RTC.  CST contends that it advised the IRS at

 that meeting that it provides no religious services to Scientology

 parishioners;  rather, it conducts activities to preserve and archive

 Scientology scriptures for posterity.  It argued that it is not involved in


  *249 Following the meeting, the three parties proposed submitting

 additional information.  The Commissioner agreed.  CST filed a submission

 related to its separate activities and tax status on May 5, 1987.  On August 3,

 1987, CSI and RTC, together, filed the Commercialism Submission, documents

 relating to the commercial aspects of the Scientology religion.  The purpose of

 the submission was to establish that CSI and RTC operate for religious rather

 than commercial purposes.  It consists of, among other things, Scientology

 publications, license agreements, audio and video tapes, and blueprints and

 charts relating to any commercial aspects of the Scientology religion.  The

 parties agree that the Commercialism Submission was filed by CSI and RTC as

 part of their applications for recognition of their exempt status.

  On July 8, 1988, all three parties received adverse exemption rulings

 from the IRS.  The 11-page ruling received by CST recites four reasons:  1)

 CST's failure to establish that it is "operated exclusively for exempt

 purposes," in part because of CST's asserted failure to participate in certain

 financial reviews;  2) that CST is "operated for substantial non-exempt

 commercial purpose";  3) that CST is "operated for the benefit of private

 persons";  and 4) CST had failed to establish that it is "not operated for the

 benefit of private persons."

  There is no question that the Commercialism Submission was not submitted by

 the plaintiff.  The court notes also that throughout the administrative

 process, CST insisted on being considered independently from RTC and CSI.  In

 addition, a representative of CSI wrote the IRS on October 12, 1988 with regard

 to questions of confidentiality and implied a similar concern for maintaining a

 distinction between the sources of submissions.  Regardless of whether

 defendant honored that request, it is clear at the threshold that the

 Commercialism Submission was not submitted by plaintiff, or on its behalf, and

 there is no suggestion that plaintiff was under the impression the

 Commercialism Submission would become or had become credited to CST as part of

 its own written representations.  It should also be noted that CST still

 maintains that the Commercialism Submission is not relevant to a determination

 of its exempt status.

  CST seeks to include the Commercialism Submission in the Administrative

 Record.  Although it sought separate consideration from CSI and RTC at the

 administrative level, it contends that the submission is now part of its

 administrative record because the IRS refused to consider CST's application

 independent of those submitted by RTC and CSI and because the IRS "actually

 relied on [the Submission]."

                                 II. DISCUSSION

  Section 7428 of the I.R.C. permits this court, the United States Tax Court

 and the United States District Court for the District of Columbia to issue a

 declaratory judgment on the initial qualification of an organization for tax

 exempt status under I.R.C. s 501(c)(3) if the organization has exhausted its

 administrative remedies and brought suit within 90 days after a final adverse

 determination is issued by the IRS.

  Review in these types of cases is typically limited to the administrative

 record.  Easter House v. United States, 12 Cl.Ct. 476, 482 (1987), aff'd

 mem., 846 F.2d 78 (Fed.Cir.), cert. denied, 488 U.S. 907, 109 S.Ct. 257,

 102 L.Ed.2d 246 (1988).  That limitation applies because section 7428

 requires a taxpayer to exhaust all administrative remedies.  Church of

 Visible Intelligence v. United States, 4 Cl.Ct. 55, 60 (1983).  Only on rare

 occasions, upon a showing of good cause, will the court allow a party to

 introduce additional evidence which was not part of the administrative

 record.  Id.  See also, Bethel Conservative Mennonite Church v. C.I.R.,

 746 F.2d 388, 392 (7th Cir.1984) (additional evidence allowed upon an

 allegation that the IRS has "erroneously interpreted or ... redefined" a

 religion's beliefs);  Easter House, 12 Cl.Ct. at 482 (showing of "good

 cause" required).

  Judicial review is limited to "whether or not the determination of the

 Internal Revenue Service was correct on the administrative record before the

 court and no additional *250 evidence is to be received."  Animal

 Protection Institute, Inc. v. United States, 42 AFTR 2d 78-5234, at 78-5853,

 1978 WL 4201 (Ct.Cl.Tr.J.Op. Sept. 19, 1978) (P-H).

  CST must carry the burden of proof as to the government's error in the

 administrative record as filed, and "all insufficient or contradictory evidence

 must be resolved against [CST]."  St. John's Orphanage, Inc. v. United

 States, 16 Cl.Ct. 299, 303 (1989).  Under Rule 217 of the rules of the Tax

 Court, the facts in the administrative record are deemed true and the taxpayer

 bears the burden of proving the IRS ruling was wrong.  Easter House v.

 United States, 12 Cl.Ct. at 482.  Only with a full and complete record can CST

 meet that burden.  Animal Protection Institute, Inc. v. United States, 42

 AFTR 2d 78-5234, at 78-5852.  It is consequently important to identify the

 administrative record in a way that fully permits CST to argue its case.

  There are no special rules in the Claims Court governing this type of case.

 Nevertheless, the legislative history of section 7428 suggests that Congress

 expected the district court and this court to follow the practices of the Tax

 Court.  Church of Visible Intelligence, 4 Cl.Ct. at 60.  Rule 210(b)(11)

 of the Rules of the Tax Court defines the administrative record as follows:

   "Administrative record" includes the request for determination, all documents

 submitted to the Internal Revenue Service by the applicant in respect of the

 request for determination, all protests and related papers submitted to the

 Internal Revenue Service and the applicant in respect of the request for

 determination or such protests, all pertinent returns filed with the Internal

 Revenue Service and the notice of determination by the Commissioner.

  One of CST's primary arguments is that the Commercialism Submission is a

 "related paper" within the meaning of Rule 210.  There is no question that

 the submission is related.  What is assumed without support, however, is that

 the rule extends to materials submitted to IRS by third parties.  In the

 court's view, the least strained reading of the rule is that it contemplates

 that all the materials will be submitted by either the applicant or the IRS.

 Defendant cites as analogous support for that construction the decision of the

 Tax Court in First Libertarian Church v. Commissioner, 74 T.C. 396 (1980).

 In that decision, the court permitted the introduction into the record of

 materials from a third party.  Defendant is correct that the unmistakable

 import of the case is that the materials became part of the record solely

 because it was impossible to tell them from materials submitted by the parties

 and because there had been no objection to their inclusion.  It is clear that

 otherwise they would have been excluded.

  Such a construction of the rule makes sense from a practical standpoint.  If

 materials can be submitted by third parties, and since facts in the record are

 deemed "true," the potential prejudice to an applicant is apparent.  The court

 therefore concludes that the rule presumptively excludes third party materials.

  Plaintiff's second argument is that the IRS in fact treated the

 submission as a part of the CST record.  It points first to the fact that in

 its final adverse ruling as to CST, the IRS made indirect reference to the

 submission.  In that ruling, the Service states that CST's "protest and

 subsequent admissions" contend that "the provision of goods and services for a

 fee" was for religious not commercial purposes.  CST alleges that the

 Commercialism Submission is the only "subsequent submission" made to the IRS

 that addresses commercialism, thus establishing that the IRS was referring to

 that set of documents in the final adverse ruling, and thus treated it as part

 of the record.

  Defendant accurately responds that CST's initial protest mentioned goods and

 services for a fee, and that CST filed its own supplemental submission on May

 5, 1987 along with a transmittal letter, both of which made reference to goods

 and services for a fee. [FN1]

      FN1. For example, the May 5, 1987 transmittal letter refers to the receipt

     of "secular assets--which include valuable income-producing properties."

     The protest refers to "contributions for auditing and training services,"

     as well as references to providing auditing services "in exchange for a

     fixed donation."  The protest also discusses at length caselaw dealing with

     income-producing activities.

  *251 While defendant denies that its ruling was based even in part on the

 Commercialism Submission, it is willing to concede, solely for purposes of this

 motion, that the submission influenced the Commissioner's decision in the

 adverse ruling.  It concedes that the same IRS personnel considered the

 applications of all three organizations.  Nevertheless, it asserts that the

 IRS's awareness of the CSI and RTC Submission does not make it part of the

 record.  In the Government's view, it can even be assumed that the IRS

 reviewers had the Commercialism Submission before them and considered it in

 rejecting CST's application.  In its response to the Walsh affidavit, defendant

 concedes that "since CST claims it collects Scientology 'scriptures' and makes

 them available to RTC and CSI, and since those organizations use Scientology

 'scriptures' in commercial endeavors, the consideration of CST's tax-exempt

 status must include an inquiry into the activities of RTC and CSI."

  Defendant's concession, in any event, is clearly grounded in fact.  There

 should be no question that defendant's decision assumes a close relationship

 between all three entities.  In fact, the initial and final rulings are largely

 based on an asserted connection between plaintiff and numerous individuals or

 other Scientology organizations.

  Defendant's response to plaintiff's motion is that, regardless of what

 influenced the Commissioner, the administrative record is limited to those

 written materials submitted by and relied on by a particular taxpayer.  It

 points out that if, in conversations during the conference of right, facts are

 discussed which go beyond the then-existing representations, those facts must

 be put in writing. [FN2]

      FN2. "Any oral representation of additional facts or modification of facts

     originally represented or alleged must be reduced to writing."  Rev.Proc.

     84-86 s 11.02, 1841-1 C.B. 544.  26 C.F.R. s

     601.201(n)(9)(v)(d) (1988) also provides:

     (d) It is the responsibility of the ... organization to furnish to the

     National Office, within 21 calendar days after the conference, a written

     record of any additional data, line of reasoning, precedents, etc., that

     were proposed by the ... organization and discussed at the conference but

     were not previously or adequately presented in writing.

  Once again, the court agrees with defendant's position.  The court must begin

 with the principle that CST bears the burden of proof in this action.  CST must

 put into the record sufficient materials to warrant the grant of tax exempt

 status.  If the record compiled lacks sufficient support to reach that

 conclusion, CST is responsible for the deficiency.  It is up to defendant to

 argue that its ruling denying exemption finds adequate support in the record.

 CST contends on the one hand that the Commercialism Submission is irrelevant to

 its position.  From that, the court can only conclude that CST believes it can

 carry its burden without those materials.  Defendant, on the other hand, is

 willing to deny itself access to the submission in responding to plaintiff on

 the merits.  Since there is no question that the document was not submitted by

 CST, since CST counts the materials to be irrelevant, and since excluding the

 submission precludes defendant from subsequently relying on it, the court has

 no alternative but to leave it out of the record.

  Accordingly, plaintiff's motion is granted in part and denied in part as


  1. The Commercialism Submission (described in defendant's index as Part IV)

 will not become part of the Administrative Record.  The Clerk is directed to

 return it to plaintiff.

  2. The index entry describing Exhibit VI-19 is revised to read as follows:

   Letter to IRS dated June 24, 1988 from Church of Spiritual Technology's


  3. The motion is denied as to record exhibits I-27, I-31, I-32, I-33, I-34, I-

 35, I-59 through I-66, I-81, I-83, and I-87 through I-93.  Those materials are

 part of the Administrative Record.

  *252 4. The motion is granted with respect to documents defendant was

 unable to locate, with respect to on-site review materials, and to permit

 plaintiff to substitute legible copies.  Accordingly, the following will become

 part of the Administrative Record:  Plaintiff's Items 548, 549, 550 (as

 Exhibits VI-25, VI-26, and VI-27), 568, 571, 572, and 946 (as Exhibits VI-28,

 VI-29, VI-30, and VI-31) including materials submitted by plaintiff and

 identified by the parties as Exhibit III-351;  and Plaintiff's Items 586, 650,

 658, 760, 780 through 783, 785, 790, 795, 845 through 851, 856, 857, 858, 865,

 866, 903 through 906, 911, 916, 924, and 943 (designated as exhibits with the

 prefix Exhibit VII along with their item number).  The parties are still unable

 to locate Exhibits III-165 and III-168.  Plaintiff may move to insert those

 Exhibits if they are later located.  Plaintiff may substitute legible copies of

 Exhibits III-353 through III-364.

  5. The balance of the record previously certified by defendant is accepted as

 part of the Administrative Record.

  6. The parties are directed promptly to arrange with the Clerk to jointly

 insert the materials listed in P 4, in order, into the record previously

 submitted by defendant. [FN3]  With the insertions and substitutions as

 directed, the materials designated by the court constitute the official

 Administrative Record.

      FN3. By Order of May 10, 1989, the court allowed defendant to file

     Exhibits II-155, VII-562, VII-578, VII-579, VII-580, VII-581, VII-600, VII-

     662, VII-672, VII-680, VII-702, VII-809, VII-886, and VII-925.  They may be

     inserted at the same time and will become part of the Administrative

     Record.  By that same order, defendant was permitted to file an "addendum

     to Part VII of the Administrative Record."  That addendum will

     presumptively be part of the Administrative Record;  however, plaintiff's

     right to challenge the inclusion of that addendum is reserved.

  7. Defendant has indicated it plans to file either a motion to dismiss on

 jurisdictional grounds or a motion for summary judgment.  It is directed to

 observe the following deadlines.  A motion to dismiss on jurisdictional

 grounds, if any, will be filed on or before November 15, 1989.  If defendant

 elects to file a motion for summary judgment instead, it will be due on or

 before December 1, 1989.  Both parties are directed to use appendices excerpted

 from the Administrative Record in arguing dispositive motions, with the

 exception of materials that cannot be conveniently photocopied.

  Defendant's response to Plaintiff's Motion To Strike Affirmative

 Allegations From Defendant's Answer will be due on or before October 30, 1989.