| VII.
Treatment of Parishioners' Contributions
A.
The Service acknowledges its obligation to interpret
and apply the "gift or contribution" requirement of
Code section 170(c) equally and consistently to the
fundraising practices of all religious organizations
that receive fixed donations from parishioners in connection
with participation in worship and similar religious
rituals or services.
B.
Until the earlier of (i) December 31, 1999, (ii) the
issuance or adoption by the Service of audit policies
or practices in the examination of tax returns utilizing
uniform and consistent principles for determining the
deductibility of fixed donations to all churches, or
(iii) until legislation is enacted which affects the
deductibility of such fixed donations, the Service agrees
not to contest the deductibility of Church of Scientology
fixed donations in connection with qualified religious
services. The phrase "qualified religious services"
means those appearing on the "Scientology Classification,
Gradation and Awareness Chart." If the taxpayer produces
an accurate receipt or other documentation from the
donee Church of Scientology substantiating (1) the amount
of the taxpayer's fixed donation and (2) the qualified
religious services with respect to which the donation
was made, then, for as long as this paragraph B. of
this section VII. applies, as set forth in paragraph
F., the full amount of the fixed donation for these
services shall be treated as a charitable contribution
under Code section 170 and shall not be challenged on
that basis. Nothing in the preceding sentence affects
other requirements, including substantiation, as provided
by law. In the absence of such documentation, the Service
also may independently determine the amount of and the
extent to which the taxpayer's fixed donations were
made in connection with qualified religious services.
Individual taxpayers' contributions to churches of Scientology
not in connection with religious services or any substantial
return benefit remain fully deductible if other requirements
under the law are met. Payments to churches of Scientology
for books or other religious articles are not deductible
except to the extend that a dual payment exists.
C.
To apply paragraph B. for taxable years before 1993,
and in consideration of the other provisions of this
agreement, the Service will settle all outstanding controversies
with individual Church of Scientology parishioners involving
the deductibility of their fixed donations under Code
section 170 on a no-change basis (subject to substantiation
of payment for qualified religious services and compliance
with other requirements of the Code). Any future deficiency
controversies with individual taxpayers involving the
deductibility of Church of Scientology fixed donations
for taxable years beginning before 1993 also will be
resolved on a no-change basis on the section 170 issue
subject to substantiation of payment for qualified religious
services and compliance with other requirements of the
Code. This process will be implemented as follows:
1.
The Office of Chief Counsel, Internal Revenue Service
will enter into stipulated decision documents with the
taxpayers listed on Exhibit VII-I (or authorized representatives)
to carry out this paragraph in the cases pending before
the United States Tax Court. Upon notice and request
of the CTCC, the office of Chief Counsel will enter
into a similar stipulated decision document in any future
case that becomes docketed in the Tax Court with respect
to a taxable year beginning before 1993. The stipulated
decision documents will reflect an allowance of charitable
contribution deductions for Church of Scientology fixed
donations in the full amount of the payments substantiated
as being paid for qualified religious services as provided
in paragraph B. above. The stipulated decision documents
also will identify as overpayments any credible or refundable
amounts paid by the taxpayers for the years at issue,
provided that the Tax Court has jurisdiction to determine
the existence and amount of such overpayment.
2.
The Service will issue administrative refunds for the
full amount of the tax that is attributable to the fixed
donations to churches of Scientology for qualified religious
services, plus interest, to the taxpayers in the following
cases:
Powell
v. United States, No. CV 90-8271 (S.D. Fla.)
Nieves v. United States, No. CV 90-4211 (S.D. N.Y.)
Following
the issuance of the administrative refund, the taxpayers
will dismiss with prejudice their respective cases.
3.
In the case of a refund claim for a taxable year beginning
before 1993 that is not barred by the statute of limitations
and is not the subject of a docketed deficiency cases
before the Tax Court or a refund cases before a District
Court or the Court of Federal Claims at the time of
the execution of this Agreement, the taxpayers shall
be entitled to an allowance of 80 percent of his or
her fixed donations in connection with qualified religious
services, as provided in paragraph B. and the claim
shall be treated accordingly. The Office of Chief Counsel
shall request the Untied States Department of Justice
to enter into a stipulation with taxpayer's counsel
(or taxpayer) in any future case seeking a refund of
income taxes for taxable years beginning before 1993
based on the Service's disallowance of charitable contribution
deductions for Church of Scientology fixed donations
for which the statute of limitations has nor expired,
in accordance with the preceding sentence. See, however,
the CTCC's obligation not to promote such claims as
provided in paragraph G.
4.
For any refund controversy described in subparagraph
3., above,the provisions of paragraph B. shall remain
open until the Service mails a notice of final disallowance
of such refund claim.
5.
If the Service is in compliance with the provisions
of subparagraphs 1-3, above, and the taxpayer refuses
the Service's offer to provide a stipulation or settlement
in resolution of the fixed donation issue of the taxpayer/parishioner
to the Church of Scientology as provided herein, then,
notwithstanding any other provision of his section VII.,
the Service shall not be bound by this paragraph as
to that taxpayer (and that year for which there is no
agreement) and shall not thereafter be bound to the
80/20 dual payment percentage as to that taxpayer for
that tax year. Nothing in this paragraph prevents the
Service, at its election, from stipulating or settling
on any other basis (or proceeding in any manner) with
any taxpayer if the taxpayer declines to settle in accordance
with this section VII.
6.
This paragraph C. shall apply to all pending and future
administrative cases in examination, appeals, or collection
for taxable years beginning before 1993.
7.
All overpayments resulting from the stipulations or
judgments provided in subparagraphs 1. through 3., above,
shall be promptly credited or refunded under applicable
provisions of the Code (including section 6611) and
regulations.
D.
To apply paragraph B. for taxable years after 1992,
the Service shall prepare and transmit instructions
to all appropriate IRS functions and Offices at the
National, Regional and District level and to IRS Service
Center explaining their obligations to carry out paragraph
B. of this section VII. In particular, those instructions
shall direct the various Service functions not to disallow
any portion of deductions for Church of Scientology
fixed donations in connection with qualified religious
services on the ground that the payments are not charitable
contributions, until the earliest of (i) December 31,
1999, (ii) the issuance by Service of the audit policies
or practices described in paragraph B. (ii) or (iii)
until legislation is enacted which affects the deductibility
of such fixed donations. Nothing in the paragraph prevents
the Service, at its election, from stipulating or settling
on any other basis (or preceding in any manner) with
any taxpayer of the taxpayer declines to settle in accordance
with this section VII.
E.
The Service also agrees to withdraw, obsolete or supersede,
Rev. Rul. 78-189 no later than April 1, 1994, irrespective
of whether the audit policies or practices described
in paragraph B. (ii) are ever issued.
F.
1. Except as provided in subparagraph 2., below, the
Service shall apply paragraph B. to all pending and
future administrative cases in examination, appeals,
or collection for taxable years beginning after 1992
through taxable years ending before January 1, 2000.
2.
If the Service implements the audit policies or practices
described in paragraph B. (ii) for a taxable year ending
before January 1, 2000, then the service shall allow
individual taxpayers charitable contribution deductions
for no less than 80 percent of their Church of Scientology
fixed donations in connection with qualified religious
services, as defined in paragraph B., to the extend
substantiated as provided in paragraph B., for taxable
years ending before January 1, 2000.
3.
If, prior to January 1, 2000, the Service has not issued
or adopted audit policies or practices described in
paragraph B. (ii), the parties agree to meet to discuss
further agreements or actions that nay be undertaken
to implement paragraph A. in the spirit of this entire
Agreement.
G.
While recognizing that all individual Scientologists
not barred by law or agreement are entitled to file
claims for refund to recover amounts covered by this
settlement and that the CTCC may inform Church parishioners
of the provisions of section VII of this Agreement,
the CTCC agrees not to promote or encourage individual
Scientologists to file claims for refund of taxes for
the taxable year 1993.
H.
Individual taxpayers making fixed donations to churches
of Scientology shall be considered to be third-party
beneficiaries of this section VII. and shall be entitled
to enforce its terms in any administrative or judicial
proceeding. Such individual taxpayers shall not be charged
with the receipt of taxable income by virtue of any
of the provisions of this agreement.
I.
The CTCC shall use its best efforts to have Scientology
parishioners agree to the stipulations and settlements
as provided in this section VII.
J.
If the Service either holds a meeting regarding the
deductibility of fixed donations to religious organizations
and invites religious organizations to participate or
solicits comments from religious organizations on the
subject, the Service shall invite the Church of Scientology
to participate or to supply comments on the same basis
as the other religious organizations.
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