| I.
Introduction.
The
parties have entered into this Agreement in order to
put the past controversy behind them, to extinguish
all potential claims and liabilities arising as a result
of action or inaction prior to the date of this Agreement
and to structure their relationship into the future.
While complex, there are certain basic principles underlying
the Agreement that will aid in its comprehension.
First,
under section II of the Agreement the Church will make
a single payment that is intended to extinguish any
potential tax liability that may be due and unpaid by
any Scientology-related entity for all tax years up
to and including the tax year ending in 1992. Thus,
as of December 31, 1992, the Church will be current
with respect to all income, employment and estate tax
liability.
Second,
under section II of the Agreement, the Church and the
Service will withdraw from virtually all existing controversy,
including ongoing examinations of Church entities, ongoing
litigation by the Service to enforce summonses for Church
records, and all litigation by the Church against the
Service and its current or former personnel. In addition,
because the parties intend that the relationship between
them begin anew, and in light of the other provisions
contained in this Agreement, including the payment with
respect to potential past tax liability, the Service
and the Church agree under this section II of the Agreement
that the Service will not examine the Church for any
year ending prior to January 1, 1993. Similarly, no
Scientology-related entity may initiate or support any
legal action against the Service or any Service employee
for any claim arising prior to the date of this Agreement.
Third,
it is the view of the Service that certain Church entities
are entitled to recognition of tax-exempt status as
entities described in section 501(c) (3) of the Internal
Revenue Code. Thus, section III of the Agreement contains
a list of entities that will be recognized as tax exempt
entities, including certain entities that will receive
group exemption letters covering their subordinate organizations.
Notwithstanding
the above, in light of, inter alia, the size and complexity
of the Church and the Service, certain concerns of the
Service and the Church remain. In addition, there is
a need for improved communication between the parties.
Thus, under section IV, a Church Tax Compliance Committee
(CTCC) has been created to undertake certain obligations
during a seven-year transition period. The CTCC is to
be comprised of the largest United States Church entities,
as well as those individuals who are the highest ecclesiastical
or corporate authorities within the Church. The Service,
through the Assistant Commissioner, has agreed to meet
with the CTCC upon their request during the transition
period to address any questions arising from the ongoing
performance of the parties' obligations under this Agreement.
The
CTCC is in a position to monitor and effect the operations
of the group entities that are defined as "Scientology-related
entities" under this Agreement. Under section IV, the
CTCC is responsible for certain reports produced and
provided annually to the Service. These reports will
include a report on the application of certain agreed-upon
procedures by an independent certified public accounting
firms, as well as certain other information collected
and reported by the CTCC. These reports, and the information
the CTCC collects from Scientology-related entities
in order to prepare them, are intended solely for the
purposes of administration of the tax laws and not for
any other purpose.
In
light of the CTCC and its relationship to the whole
of Scientology, the CTCC has agreed under section IV
to guarantee the collection of taxes (including interest
and penalties) from any Scientology-related entity for
tax liability arising during the first three years of
the seven-year transition period. The parties have agreed
under section V to keep confidential both this Agreement
and all underlying information that is not part of the
public record under Code section 6104 except to the
extent that disclosure is necessary to interpret or
apply this agreement or is permitted under the authority
of law. In addition, the CTCC has agreed under section
VI to certain consensual penalties intended to provide
the Service intermediate sanctions for activities or
conduct not in accordance with the Code or with this
Agreement.
Finally,
under section VII, the Service and the Church have come
to an agreement with respect to the treatment of contribution
by Church parishioners and the extent to which those
contributions are deductible under section 170 of the
Internal Revenue Code, as well as the Service's acknowledgment
of 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.
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