How scientology defrauded the IRS through an elaborate corporate shell game.

Based on an essay by Chris Owen.

Introduction

This is an abbreviated account of some of the activities that the scientology organizations orchestrated during the 1981-1982 corporate reorganization of the scientology "Mother Church." If you are aware of this time period and wondered where the money went, this may answer some of your questions. This is based on insider information, not hearsay.

D-Day

December 14, 1981 was "D Day." The "D" stood for Divestiture, a term meaning to dispose or disburse the assets of.

By 1980, the Guardian's Office World Wide ("GOWW") and other Scientology officials and lawyers working on several of the "Church of Scientology of California vs. the IRS" lawsuits realized that they had a very serious problem. The problem was that the majority of Scientology's assets were under the legal name of the "Church of Scientology of California" a California Corporation. The assets included millions of dollars in trust monies, cash accounts, properties (such as the Flag Land Base, Clearwater Florida) and many documents, copyrights, etc.

In addition, the Church of Scientology of California (hereinafter "CSC") was referred to as the "Mother Church" and had spawned many other Scientology churches throughout the world. What had happened is that as Scientology attempted to gain a foothold in various states in the U.S. and in various countries around the world, the scientology staff would draft and file incorporation papers which often used the name "Church of Scientology of California." There was a Church of Scientology of California, UK Branch, for example, as well as many, many other "CSC" corporations in other countries.

The problem was compounded by the fact that the CSC was party to numerous law suits both as plaintiff and as defendant. Most threatening were those with the IRS and those lawsuits from former members who claimed monetary damages for their emotional and other injuries suffered at the hands of scientology organizations.

The CSC was seen, and acted, as the controlling entity in overseeing and directing international money flows for scientology, at the direction of L. Ron Hubbard. Hubbard directed the money flows through policy, and through direct orders to scientology organizations and staff. L. Ron Hubbard's orders were kept highly secret from the general public. However, it was well known within the upper ranks of scientology, i.e., the Guardians Office (GO) and CMO (Commodore's Messenger Organization), and the International Management Organization (IMO), Watchdog Committee (WDC), etc., that orders, directives and policies from Hubbard himself were absolutely top priority and to be followed without question. Orders from Hubbard were sent via special courier or via telex. Frequently signed "R" or "Love=R", these orders were sometimes referred to as "LRH Advices" to give the appearance that they were only advice from an uninvolved party. They were in fact direct orders from Hubbard. These "advices" were often referred to in management circles as "Boss Orders." Hubbard of course was the "Boss."

As law suits against scientology continued to mount, and the potential threat of having to pay damage claims in the millions of dollars, as well as many millions in back taxes to the IRS, a special task force was ordered to sort out the corporate mess that the scientology organizations had gotten into. This mission was called Mission Corporate Category Sortout, or MCCS for short.

This special task force discovered and documented that the corporation situation was indeed a mess and that the assets of scientology were at serious risk.

This was of extreme interest to the scientology attorneys in Los Angeles who were preparing the CSC's IRS case for the years 1970-1972 (called the "'70-'72 Case"), and to the Guardians Office legal department who had commissioned a legal analysis of the church's "Religious Research Foundation" corporation. The Religious Research Foundation ("RRF") was founded in Monrovia, Liberia, under the direction of former Deputy Guardian Finance World Wide, Herbie Parkhouse. The purpose of RRF was to collect monies paid by U.S. scientologiests for services they would receive from scientology, primarily at the Flag Land Base. The purpose of RRF was to evade U.S. taxes by listing all payments to a foreign corporation. The RRF collected many millions in this way, all untaxed and unreported to the IRS. The amount exceeded $45 million by 1981. The total amount transferred during 1981 probably exceeds this amount.

However, the legal analysis of the RRF corporation, provided by an attorney named Elwood Rickless, showed that RRF was a "sham" corporation, or a "paper" corporation. There was no real RRF, just a name plate on a door somewhere in Monrovia, Liberia. It was a sophisticated money-laundering scheme set up by scientology to hide income to the church. RRF was often referred to by the code name "Ralph."

Legally, all RRF monies belonged to CSC and could be considered assets of CSC. The "Rickless Memorandum" as it was called, proved the worst fears of scientology's LA lawyers. The RRF scam corporation, and the over-incorporation and proliferation of CSC throughout the world, meant that the CSC entity owned and controlled all scientology, and since Hubbard controlled CSC, there was a direct link and a direct risk to Hubbard personally and to the majority of scientolology assets worldwide.

In attempt to solve this mess, another mission was launched called Corporate Sort Out or "CSO." CSO was the successor mission to the MCCS mission. The CSO's overall objective was to set up a new and legally defensible corporate structure that would safeguard the scientology money flows and assets, and divest the CSC entity of all major assets. The goal was to paper over the existing mess with what would appear to be a series of independent legal entities, which would have no visible direct legal control from Hubbard or the CSC entity. The control would still be there, however, it would just be invisible.

December 14, 1981, was set as the target date to implement the major corporate changes. These included many separate but related activities, such as:

• Setting up a new corporation called "Church of Scientology International" ("CSI") which would be the new "Mother Church" and which would be the "public relations" front for hidden control through Hubbard's Commodore Messenger Organization.
• Setting up the "Church of Scientology Religious Trust" ("CSRT") as a tax exempt, charitable religious trust, under Internal Revenue Code 501(c)(3). This new trust would accept monies from other scientology churches and hold them.
• Setting up the "Scientology Endowment Trust" ("SET") as the trust to receive old OTC money. OTC was Operation Transport Corporation, founded by Hubbard, which originally owed the Apollo and which had accumulated millions of dollars of income, unreported as scientology income to the IRS. By 1981, the OTC funds were approximately $7 million, and this became the new SET money. OTC was referred to by the code name "Oscar."
• Incorporate other scientology organizations as separate entities, rather than as branches of CSC, to give the appearance that they were not directly owned and controlled by the old CSC mother church. Other corporations involved at this time included the Church of Scientology Religious Technology Center ("COS RTC"), the Church of Spiritual Technology ("COST"), and others.
• Cleanup the "U.S Churches of Scientology Trust" so that it could accept other money and be a safe respository for scientology assets. Mary Sue Hubbard was one of the original trustees, but she was later removed by the Hubbard and/or David Miscavage.
• All illegally collected RRF monies were transferred into one or more of the new trusts, and the existence of RRF was burried under a veil of corporate paperwork and money transfers. CSC and OTC accounts in the international banking centers of Luxembourg (Bank de Suez) and in Lichtenstein, and in other places, were emptied and funds were filtered to the trusts. During this period it is believed that Hubbard's personal attorney and others intervened to ensure that Hubbard received a substantial portion of this money directly into his personal accounts or accounts maintained for his benefit and use.

How Was it Done?

An intricate legal network of attorneys was employed to carryout the creation of this shell game. One of the scientology paid attorneys involved was a former high ranking official at the Internal Revenue Services, Meade Emory. Another key coordinating attorney behind the scenes was Christopher Cobb. Laurence E. May was another coordinating attorney. All attorneys were under the control of, direction of, and on the payroll of scientology during this period. Specific direction came from the secret location at which Hubbard was located, via his Commodores Messenger Organization International (CMO Int.) couriers.

The effect that this new corporate structure had was to seemingly successfully hide scientology's primary assets from the IRS and from successful litigants who had won claims against the CSC entity. The sophisticated mechanism of multiple corporations allowed, and still allows, a cover for those who actually control all major policy decisions, legal decisions, and money flows, regardless of what corporate papers say to the contrary. All control of scientology assets, money flows, and activities is centered at the very top. If you look behind the corporate veil, you will see this clearly. Scientology has co-opted and bought control of selected U.S. government officials, particularly in the IRS, in order to carry out and maintain this charade effectively. Without the cooperation of those individuals, the infamous IRS decision to award scientology churches tax exempt status would have never materialized.

What Now?

It is up to whatever ethical elements remain in the U.S. Federal Bureau of Investigation to pursue this line of illegal money laundering and tax evasion, and expose both the IRS involvement and scientology's involvement in what has become one of the biggest tax scams of this century.

It also up to the public and the free speech of the Internet to continue to pursue the truth behind scientology's lies and the damage it has done to many, many thousands of people, and to expose the underlying greed, anger and hatred upon which the scientology cult is based.