Inside Scientology (26 page)

But Scientology faced one last formidable adversary: the Internal Revenue Service. Scientology's conflict with the IRS originated in 1967, when the agency, which had previously granted tax exemption to Scientology, revoked its tax-exempt status after finding that Scientology, and Hubbard in particular, seemed to be profiting from the operation. The Church of Scientology appealed this decision and refused to pay taxes—a stance it would maintain for the next twenty-six years.

This reaction prompted the IRS to embark on a deeper examination of Scientology as a "dissident group."
Between 1969 and 1975, the Church of Scientology and its activities were monitored by three different agencies within the IRS. Scientology, in turn, monitored the IRS as part of Operation Snow White.

Even after Operation Snow White was uncovered, Scientology's war with the IRS only intensified. In September 1984, the U.S. Tax Court denied the church's appeal of the IRS's original 1967 ruling, concluding, as others had done before, that Scientology "made a business out of selling religion."
The judge went into great detail about Scientology's many acts of obstruction, noting how Hubbard had once ordered his staff to mix up some two million pages of tax-related documents to make it difficult for IRS agents to sort through them. The court noted that "criminal manipulation of the IRS to maintain its tax exemption (and the exemption of affiliated churches) was a crucial and purposeful element of [Scientology's] financial planning."

Meanwhile, the IRS's criminal investigation into Hubbard's finances had moved on to examine the activities of the RTC and Author Services, as well as their key officials. For several years, Miscavige would later maintain, he and several other officials were the target of investigation by the IRS's Criminal Investigations Division. The IRS didn't comment on the investigation, and the case was dropped with Hubbard's death in 1986. But Miscavige never forgot. To Scientology's new leader, as to its Founder, the IRS represented far more than a powerful government agency determined to "suck the blood from the whole country,"
as Miscavige once put it; it was the vanguard of a global campaign, launched by psychiatrists, to crush the church.

"A tax-exempt organization is not subject to the myriad complexities of the Internal Revenue Code which can be used to harass and destroy organizations the IRS does not like," Miscavige told his flock. "But most importantly, because all bona-fide religions and churches in the United States do have tax exemption ... if the IRS refused to grant such to Scientology that fact alone could be used to [discredit] the church internationally."
Without tax exemption, he argued, Scientology would never be seen as a religion. Nothing, in Miscavige's mind, could damage Scientology more.

In 1988, Marty Rathbun received his next assignment from Miscavige: launch a campaign to win tax exemption from the IRS. The plan, according to Rathbun, was to follow L. Ron Hubbard's edicts in the most strategic way possible in order to overwhelm the agency and wear it down. To prosecute this war, Rathbun would rely upon the Office of Special Affairs, which he had helped establish five years earlier. Since then, OSA had carried out numerous assignments, ranging from litigating against Scientology enemies to far stealthier black operations, just as the Guardian's Office had always done.

Staffed by some of Miscavige's closest associates, OSA also employed numerous former Guardian's Office officials who, having survived the purges of the early 1980s, had been offered a second chance. "The measuring stick in the Church of Scientology has never been whether you were participating in illegal activities#x2014;it's whether you were caught," Jesse Prince, who took part in several intelligence operations in his capacity as an RTC executive, told me. "Those who weren't caught and punished were still used."

Like the old Guardian's Office, OSA handled public-facing activities: legal affairs, public relations, and Scientology's various social betterment programs. It also handled its most secret undertakings and continued to use Scientologists as informants and operatives, as well as employing a cadre of private investigators. It had been OSA that had ruined David Mayo and destroyed his independent Scientology network, using private investigators like Eugene Ingram, who served OSA for many years. The Office of Special Affairs had also created Scientology's Crusade for Religious Freedom as a public relations strategy.

But whereas the Guardian's Office had been an impregnable entity so covert as to not even appear by name on the church's organizational chart, OSA was listed in Scientology's incorporation papers. "Where OSA differs from the Guardian's Office," explained one former Scientologist who was an operative for both intelligence bureaus, "is that OSA wants to seem above board and approachable. That makes Scientology seem more approachable, which, they hope, will help the church operate as a religion freely, without harassment." In service to this goal, OSA made more of an effort to create a legal wall between the church and any covert activities, relying much more on private investigators, and paying a legion of outside attorneys.
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They kept busy. Throughout the late 1980s and into the early 1990s, the Church of Scientology filed some two hundred lawsuits against the IRS, while more than twenty-three hundred individual Scientologists sued the agency over its refusal to allow them to claim their Scientology contributions as tax deductible. These "cookie-cutter suits,"
as Rathbun described them, soon became cases that cost Scientology tens of millions of dollars in legal fees—with presumably similar cost to the IRS.

At the same time, the church, long an expert on using the Freedom of Information Act, filed hundreds of requests for internal IRS documents. Some of their findings were published in
Freedom,
a magazine created by the Office of Special Affairs to shed light on various government agencies and their abuses. In Washington, D.C., OSA deployed Scientology operatives to flock Capitol Hill, attend congressional hearings, and network with Hill staffers. One former OSA official explained that for more than a year, she'd fed congressional aides information on the IRS's handling of groups as divergent as the Amish and owners of small businesses, to shed light on its often prejudicial auditing and investigative practices. "They all knew we were from the church. It was a public relations thing," she said. "We were trying to get people to come forward and show that there were attacks on other members of the public, not just on Scientology."

To further this effort, OSA created, and financed, a grassroots lobbying organization known as the National Coalition of IRS Whistleblowers to support IRS employees who wanted to expose corruption. The coalition was planned through
Freedom
magazine and hired as its president a former IRS agent named Paul DesFosses. Stacy Young, then the managing editor of
Freedom,
later told the
New York Times
that "the whole idea was to create a coalition that was at arm's length from Scientology so that it had more credibility."

By the summer of 1989, these efforts were beginning to pay off. The National Coalition of IRS Whistleblowers helped spark congressional hearings on IRS abuses, based on leaked documents and other records that showed, among other things, that several Los Angeles IRS agents had shielded a California apparel manufacturer from a tax investigation after the agents bought property from the manufacturer. The
New York Times,
in an op-ed published on July 24, 1989, predicted that the proceedings might be the "most startling Congressional hearings since Watergate."

The hearings did expose significant abuse within the agency. The Church of Scientology, emboldened, began to press for further IRS reform. On April 16, 1990, David Miscavige wrote an editorial in
USA Today
calling for the abolition of the IRS and the creation of a new "value added" tax on goods and services.
In October 1990, bands of whistle-blowing Scientologists with the National Coalition of IRS Whistleblowers protested in front of the IRS offices in Washington, D.C., offering a $10,000 reward to any agent willing to expose IRS abuses.

The church also spent roughly $6 million on a series of full-page advertisements that ran in
USA Today
and the
Wall Street Journal.
One advertisement, with the heading "Don't You Kill My Daddy!" addressed an incident in which "a band of armed IRS agents" supposedly tried to choke an Idaho man who hadn't paid his taxes. Several of the ads also featured photographs of individual agents, including the IRS chief, Fred Goldberg Jr.

Scientology did not confine its war to the IRS as an organization. Following the well-worn path that L. Ron Hubbard had laid out, the church hired private investigators to dig into the lives of IRS employees. One of these investigators, Michael L. Shomers, later told the
New York Times
that in 1990 and 1991, he was retained by the Church of Scientology to perform a variety of services, including "looking for [the] vulnerabilities" of various IRS agents. Posing as an IRS employee, Shomers said he attended IRS conferences, where he took notes on those agents who seemed to have a drinking problem or were being unfaithful to a spouse. He then provided the church with the names, and in some cases the phone numbers, of agents he thought it might be easy to blackmail.
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In August 1991, the church filed a $120 million federal lawsuit against seventeen individual IRS officials, accusing them of various illegal acts, including infiltrating the church using paid informants, conspiring to plant phony documents in Scientology's files, and in one case, attempting to rewrite the IRS definition of
church
to enable the agency to deny the Church of Scientology its exemption.

The agency, overwhelmed, began to feel the cumulative effect of the church's pressure campaign. "It was blatant harassment," opined one formerly high-ranking IRS official. He'd been harassed by Scientologists, he noted, since the 1970s. "They have a nasty habit of finding your unlisted telephone number and calling you at two
A
.
M
.,
just to let you know they're there." One assistant commissioner repeatedly found his garden hose mysteriously turned on in the middle of the night. Other agents reported that their dogs and cats had disappeared.

In the fall of 1991, Miscavige proposed meeting with the IRS commissioner Fred Goldberg, personally, to work out a deal.
He floated the idea, said Rathbun, during a meeting with the church's lawyers based in Washington, D.C. The attorneys balked. But Miscavige insisted, and Goldberg agreed to see them later that week.

As Rathbun later recalled, Miscavige opened the meeting with a twenty-minute speech that included a passionate defense of Scientology as a legitimate religion. He acknowledged the Church of Scientology's history of harassment and lawsuits, but claimed that the church had never had much choice. "We're just trying to defend ourselves," he said.

Then he made a peace offering. "Look, we can just turn this off," he told Goldberg, in reference to the lawsuits—provided that the Church of Scientology could get "what we feel we are actually entitled to," which was full exemption. Goldberg had been with the IRS since 1982, and was, by all accounts, eager to make the messy Scientology battles go away. During a break Goldberg came up to Rathbun and asked if Miscavige was serious. "We can really turn it off?"

Rathbun looked at the commissioner. "Like a faucet."

For the next two years, Rathbun and Miscavige made weekly trips to Washington, D.C., to meet with a five-man working group of IRS officials that had been put together by Commissioner Goldberg, outside normal channels. The group was highly irregular; it bypassed the IRS's Exempt Organizations Division, which would have normally handled the review of the Church of Scientology's status. When asked about this, Rathbun suggested that Goldberg had tried to eliminate the "Scientology haters" from the review process, which required creating his own side group to review the claims.

Every week, Rathbun and Miscavige returned to Los Angeles with questions from the tax authorities; their aides would work diligently to prepare answers for the officials' next trip. "There was a huge number of people putting together all of this information: binders and pictures, charts," recalled Tanja Castle, who was one of David Miscavige's secretaries at the time. "The whole religion of Scientology was basically explained to the IRS: the Grade Chart, the ethics conditions ... [Dave and Marty] were trying to show these guys how Scientology
is
a religion, how it actually did conform to the basic tenets of a religion, how it wasn't for profit—we gave them all the finance records from all the treasuries, all the way down to the lowest org. The entirety of Scientology had to get their financial records straight"—a difficult task, as most of the organizations kept few if any records.

Indeed, said one church finance officer, the church's finances were such a mess, it had to reconstruct its books wholesale. "There really were no books," she said. "Had anyone from the IRS come in and looked at our finances, they would have never given us any kind of exemption. Some of these orgs hadn't recorded their income, yet their members were claiming on their tax forms that they'd donated tens of thousands of dollars to Scientology, and no one could prove it. They had no records that actually gave you any idea of what a church had, or what it spent—and I'm talking about all the organizations all over the country."

To fix this problem, David Miscavige had created an "audit task force" in 1987 to do forensic accounting. In Los Angeles, Scientology's Pacific Area Command Base became the site of a frenzied audit involving 120 Scientologists who worked nearly round the clock to make sense of the church's finances. In New York, a task force of around 50 people set up shop on a floor of the New York Org in midtown Manhattan and did the same thing. Over the next several years, as the church's lawsuits and investigations of the IRS ballooned, these Scientologists pieced together the books of every Scientology organization, mission, and church-affiliated entity in the United States.