| II.
Resolution of Outstanding Issues.
A.
In General. In general, the parties to the Agreement
intend that the below-described issues be finally and
conclusively resolved under this Agreement.
B.
Payment in Consideration of Resolution of Outstanding
Issues.
1.
At the same time this Agreement is executed, Church
of Scientology International is paying by banker's draft
the sum of Twelve and One-Half Million United States
Dollars (US$12,500,000.00), receipt of which the Service
hereby acknowledges, as consideration for the settlement
of outstanding issues with the Service as set forth
in this Agreement.
2.The
amount paid under this Agreement includes recognition
that the Church will not collect the attorneys' fees
awarded to the Church in the Church of Scientology of
Boston, Inc. litigation referred to in Exhibit II-2,
thus extinguishing the Service's liability under that
decision.
3.
The amount paid under this Agreement is not considered
part of, or attributable to, the federal tax liability
of any Scientology-related individual or Scientology
parishioner, and is not deductible, refundable or creditable
to any such individual for any purpose, nor may the
amount be the subject of any other offset of liability
under this Agreement.
4.
If, after application of the provisions of paragraph
IX.H., the Service assesses a tax liability for a taxable
year ending before January 1, 1993 against any Scientology-related
entity, the amount paid under this Agreement shall be
treated as a payment of the taxes so assessed against
such entity as of the date of this Agreement in the
manner designated by the CTCC. Otherwise, such amount
shall not be considered part of, or attributable to,
the federal tax liabilities of any Scientology-related
entity and is not deductible, refundable or creditable
to any such entity for any purpose, nor may the amount
be the subject of any other offset of liability under
this Agreement.
5.
The amount paid under this Agreement may be designated
as the Service provides (including penalties or liquidated
damages) so as to avoid characterization as a refundable
or creditable amount.
6.
The amount paid under this Agreement shall not be deductible
in computing the taxable income of any Scientology-related
entity or Scientology parishioner and shall not be treated
as compensation of either income to any Scientology-related
entity or Scientology parishioner.
7.
The performance of the various obligations under this
Agreement by the CTCC or by any Scientology-related
entity, including (but not limited to) the payment under
paragraph II.B.1. hereof, shall not in and of itself
be considered by the Service to constitute the conferring
of substantial private benefits by any Scientology-related
entity, the private inurement of the net earnings of
any Scientology-related entity, nor shall such performance
adversely affect in any other way the tax exempt status
under Code section 501 (c) (3) of any Scientology-related
entity.
8.
No inference shall be drawn from the fact that the payment
provided in paragraph II.B.1 has been made with respect
to whether any Scientology-related entity agrees that
any tax liability was actually due or owing for any
pre-1993 period.
C.
Effect of Agreement on Prior Tax Years and Waiver of
Rights of Action.
1.
The Service agrees not to commence an examination or
assess any tax liability under subtitles A, B, or C
of the Code or under Chapter 42 of subtitle D of the
Code for any taxable period ending on or before December
31, 1992, with respect to any Scientology-related entity.
Similarly, no Scientology-related entity shall have
any right to refund or offset with respect to any payment
made for any taxable period ending prior to the date
this Agreement is executed. Notwithstanding the previous
sentence, any amounts held in accounts under the joint
signatory authority of any Scientology-related entity
and a representative of the Service, and any other amounts
otherwise in the nature of bond, to defer collection
action by the Service with respect to any liability
assessed against a Scientology-related entity for the
a pre- taxable period (including, but not limited to,
joint signature accounts at Sumitomo Bank to serve as
collateral for FICA assessments against CSI, RTC, CSWUS,
and CST) shall be released or otherwise returned to
the Scientology-related entity. The Service and the
CTCC shall jointly draft notice to the bank (s) to effectuate
release of such funds.
2.
To the extent any payments have been made and/or claims
for refund filed for any taxable period prior to the
date of this Agreement by a Scientology- related entity,
the Church and Service agree that such payments are
not subject to refund and will not be refunded. The
CTCC certifies that no Scientology-related entity will
continue to pursue such claim for refund or file any
new claim for refund for any pre-1993 period.
3.
The Service and the Church agree that no inference is
to be drawn from any provision of the Agreement as to
the tax treatment of any activity or item relating to
any liability under the Code for any post-1992 periods
unless expressly provided herein. For example, the fact
that the Service has not assessed any unrelated business
income tax for past years may not be construed to mean
that activities that occurred in those years did not
give rise to such liability and that if such activities
continue into post-1992 taxable years, that they will
not give rise to such income. For further example, the
fact that the Church has made the payment provided in
paragraph B.1. shall not be construed as an admission,
or otherwise used in any way as evidence, that any Scientology-related
entity was not exempt from federal tax for any taxable
period before 1993.
4.
In reliance upon the covenant of good faith and fair
dealing that underlies this Agreement, the Church signatories,
as well as the Individual At-large members of the CTCC
agree to relinquish all claims arising out of any action
or inaction of the Service of current or former Service
employees that occurred prior to the date of this Agreement,
including, but not limited to, any claims of continued
conspiracy having a genesis prior to the date of this
Agreement. In addition, the Church signatories, and
the Individual and At-large members of the CTCC certify
that no Scientology-related entity or Scientology-related
individual shall assist (directly or indirectly) any
party in any suit against the United States, the Service
or current or former Service employees based upon any
claim arising out of any action or inaction of the Service
or former or current employees that occurred prior to
the date of this Agreement including, but not limited
to, any claims of continued conspiracy having its genesis
prior to the date of this Agreement. If any Scientology-related
entity or Scientology-related individual commences any
such action or provides any such assistance, then section
VI shall apply.
5.
The CTCC shall indemnify and hold the United States,
the Service or any Service employee (former or present)
harmless with respect to any litigation filed or pursued
in contravention of the Agreement, that is, any litigation
filed or pursued by or with the assistance of any Scientology-related
entity or Scientology-related individual. For purposes
of this paragraph C.5, direct or indirect assistance
includes, but is not limited to, financial aid, litigation
support, or the use in connection with litigation of
documents obtained from the Service by any Scientology-related
entity or Scientology-related individual prior to the
date of this Agreement or under the Inspection provisions
of the Settlement Agreement entered into by the parties
on even date herewith.
6.
Subject to the requirements of section VII, paragraph
G., nothing in the preceding two paragraphs shall be
construed to prevent any Scientology-related entity
from conducting, supporting, or participating in, directly
or indirectly, any judicial proceeding to construe or
enforce the obligation under this Agreement, nor to
impose any sanction or require indemnification to the
Service as a result of such proceeding.
D.
Effect on Outstanding Administrative Matters.
1.
Church tax inquiries under Code section 7611. The Service
shall close the following church tax inquiries on a
no-change basis:
Church
of Scientology International
Church
of Scientology Flag Service Organization, Inc. (two
outstanding inquiries)
Church
of Scientology Western United States
2.
Other examinations of Scientology-related entities The
Service shall close the following income or employment
tax examinations on a no-change basis:
Church
of Scientology Expansion Trust
Church
of Scientology Religious Trust
Scientology
Endowment Trust
Bridge
Publications, Inc.
Applied
Scholastics International
Author's
Family Trust B
International
Association of Scientologists
Religious
Technology Center
Church
of Scientology International
Church
of Spiritual Technology
Church
of Scientology Flag Service Organization, Inc.
Church
of Scientology Western United States
Church
of Scientology of California (employment)
3.
Outstanding tax assessments. The Service shall abate
in their entirety the following unpaid tax assessments:
Church
of Scientology of California, FICA and FUTA for all
quarters of the years 1976 through 1986.
Religious
Technology Center, FICA for all quarters of the years
1986 and 1987.
Church
of Scientology International, FICA for all quarters
of the years 1986 and 1987.
Church
of Spiritual Technology, FICA for all quarters of the
years 1986 and 1987.
Church
of Scientology Western United States, FICA for all quarters
of the years 1986 and 1987.
Religious
Technology Center, Form 1120 Corporate Income Taxes,
interest and penalties for the years 1982 to 1988.
Church
of Scientology International, Form 1120 Corporate Income
Taxes, interest and penalties for the years 1981 to
1988.
With
respect to the foregoing tax assessments, the Service
agrees to withdraw any notices of levy and to release
any notices of tax lien filed or made prior to the date
of this Agreement.
4.
Trust fund recovery penalties. The Service shall abate
in their entirety assessments made under Code section
6672 with respect to certain FICA assessments against
Church of Scientology of California (1985-1986), Church
of Scientology International (1988), Church of Spiritual
Technology (1988), Religious Technology Center (1988),
and Church of Scientology Western United States (1988),
against the following individuals: David Miscavige,
Norman F. Starkey, Marc Yager, Mark Ingber, Lyman Spurlock,
Patrick Broeker, and Ann Marie Tidman (Broeker). In
addition, with respect to the foregoing penalty assessments,
the service shall (1) refund upon proper claim any amounts
collected, along with interest as permitted by law,
(2) withdraw any notices of levy, and (3) release any
notices of tax lien filed.
5.
Time period in which to effectuate paragraph D. The
Service shall take the actions required under this paragraph
D. by April 1, 1994.
E.
Effect on Outstanding Litigation Matters.
1.
In general. The Service and the CTCC agree that all
litigation set forth in Exhibits II-1 and II-2 shall
be dismissed with prejudice by stipulation of the parties
(or, where appropriate, the pending appeal shall be
withdrawn) with all litigation costs (e.g., attorney
fees) to be borne by the respective parties. The parties
agree that no damages, costs, attorney fees, or any
other amounts of relief shall be sought by any Scientology-related
entity or Scientology-related individual, the United
States, the Service or any individual plaintiff in any
suit contained in Exhibits II-1 or II-2.
2.
Zolin. The Service further agrees that following dismissal
of the litigation listed on Exhibit II-2 as Zolin, it
shall use its best efforts to return to the CTCC all
materials and all copies thereof produced to the Service
in response to the summons at issue in that litigation
by no later than April 1, 1994. The CTCC hereby certifies
that CSI shall retain all such materials during the
transition period. No inference shall be drawn from
the fact the Service is returning these materials that
they were summonsed for an improper law enforcement
purpose and the CTCC agrees not to assert such an inference
in any future litigation.
3.
Stipulations. At Exhibit II-3, are copies of stipulations
to dismiss the cases discussed at paragraph E.1. executed
by counsel of record for the non-governmental parties
thereto. The parties agree that, to the extent practicable,
these stipulations shall be used to cause the dismissal
of these cases and will provide a complete resolution
of all issues arising out of the same subject matter.
The parties agree that these stipulations shall be executed
by counsel of record for the government and returned
to the CTCC. The CTCC will file the fully executed stipulations
with the appropriate court within 30 days of its receipt
of the executed stipulations. The parties further agree
not to undertake any further actions to prosecute or
defend any such litigation during the period of time
following execution of this Agreement until the court
has acted on the parties' dismissal stipulations. In
addition, the parties agree to file as necessary requests
to stay any action on such cases pending dismissal.
4.
Certain pending cases requiring coordination. Recognizing
that carrying out the provisions of this paragraph E.
shall require coordination with persons and agencies
not parties to this Agreement, the parties further agree
as follows:
a.
The Service shall use its best efforts to secure the
voluntary dismissal with prejudice of all litigation
listed in Exhibits II-1 and II-2 in which the Commissioner,
the Service and /or Service employees are represented
by the United States Department of Justice.
b.
The CTCC shall use its best efforts to secure the voluntary
dismissal with prejudice of all litigation listed in
Exhibits II-1 and II-2 insofar as it involves litigants
who are not Scientology-related entities or individual
members of the CTCC. Following execution of this agreement,
the Church signatories, and the Individual and At-large
members of the CTCC certify that no Scientology-related
entity nor Scientology-related individual shall provide
any further support or assistance (directly or indirectly)
in such litigation.
F.
After-Discovered Cases or Examinations in Existence
as of the Date of this Agreement. It is the intention
of the parties to cease activity and dismiss with prejudice
all existing cases in controversy between the Service
and any Scientology-related entity or Scientology-related
individual, costs to be borne by each party (e.g., attorney
fees), as well as all existing current examinations
of Scientology-related entities for years prior to 1993.
Thus, if there exists other civil actions that are not
contained in Exhibits II-1 and II-2 or in the Settlement
Agreement, Exhibit IV-6, or an examination of a Scientology-related
entity is not listed in paragraphs D.1 and D.2, and
the exclusion of such suit was inadvertent (i.e., not
specifically discussed and intentionally excluded by
the parties during their negotiations), the parties
agree to dismiss such suit or cease such examination
as soon as administratively feasible.
G.
Finality. The provisions of this section II. are final
and conclusive, except as provided in section IX, paragraph
H., notwithstanding the seven-year transition period
set forth in other provisions of this agreement.
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