Scientology and the IRS



"Snow White"

"Project Normandy"

The Attack on Gabe Cazares


Literati Contest

Scientology and Clearwater

CoS / IRS Closing Agreement

Form 906

Rev. January 1987

Department of the Treasury -- Internal Revenue Service


Closing Agreement On Final Determination Covering Specific Matters

Under section 7121 of the Internal Revenue Code, the parties named herein and the Commissioner of Internal Revenue make the following closing agreement:

WHEREAS, the Church of Scientology and its constituent entities (the "Church") and the Internal Revenue Service (the "Service") have a long history of controversy spanning over 30 years;

WHEREAS, the Church has pending with the Service applications on Form 1023 requesting that the Service recognize certain constituent entities within the Church as exempt from income taxation pursuant to section 501(a) of the Internal Revenue Service Code, as exclusively charitable organizations described in section 501 (c) (3) of the Code;

WHEREAS, the controversy between the parties includes litigation (hereinafter "the section 170 litigation") in which the deductibility under Code section 170 of parishioners' payments to the Church in connection with their participation in religious services of the Scientology faith is at issue;

WHEREAS, the Church signatories and individual Scientologists have initiated, supported and/or otherwise participated in litigation under the Freedom of Information Act (FOIA) to compel the Service to disclose information withheld by the Service in response to FOIA requests about its treatment of Scientologists and Churches of Scientology (hereinafter "FOIA litigation");

WHEREAS, in October of 1991, the key officials of the Church, David Miscavige and Mark Rathbun, approached the Service seeking to negotiate the resolution of the above-described matters, and met with the then Commissioner;

WHEREAS, at this meeting, the Commissioner indicated his desire to resolve all outstanding issues between the Church and the Service and appointed the Assistant Commissioner to negotiate and conclude a settlement with the Church on behalf of the Service;

WHEREAS, the Church and the Service intend this closing agreement to be final and conclusive with respect to all matters but, while also final and conclusive, that its provisions relating to the continuing duties and obligations of both parties during the transition period shall generally be effective until December 31, 1999;

NOW IT IS HEREBY DETERMINED AND AGREED, for purposes the Internal Revenue laws of the United States, and in consideration of the provisions contained herein that:


  1. Introduction
  2. Resolution of Outstanding Issues
    1. In General
    2. Payment in Consideration of Resolution of Outstanding Issues
    3. Effect of Agreement on Prior Tax Years and Waiver of Rights of Action
    4. Effect of Outstanding Administrative Matters
      1. Church tax inquiries under Code section 7611
      2. Other examinations of Scientology-related entities
      3. Outstanding tax assessments
      4. Trust fund recovery penalties
      5. Time period in which to effectuate paragraph D
    5. Effect on Outstanding Litigation Matters
      1. In general
      2. Zolin
      3. Stipulations
      4. Certain pending cases requiring coordination
    6. After-Discovered Cases of Examinations in Existence as of the Date of this Agreement
    7. Finality
  3. Service Determinations Regarding Scientology-Related Entities
    1. Issuance of Determination Letters
    2. Individual Determination Letters
    3. Group Determination Letters
  4. Obligations and Undertakings During the Transaction Period
    1. Establishment of Church and Tax Compliance Committee
      1. Purpose of Church Tax Compliance Committee
      2. Membership of Church Tax Compliance Committee
        1. Corporate CTCC members
        2. At-large members of CTCC
        3. Individual CTCC members
      3. Responsibilities of CTCC
        1. Annual report
        2. Communications
        3. Meetings
        4. Guaranty
        5. Liability for penalties
      4. Actions of CTCC
    2. Financial Reporting Requirements
      1. Special accounting procedures
        1. In general
        2. Special Accounting Procedures --Operational aspects
        3. CPA's reports -- In general
        4. CTCC responsibilities
        5. Selection of a qualified CPA
        6. Definition of qualified CPA
        7. CTCC's approval of selection
        8. Notification of selection
        9. First Qualified CPA
        10. Special Purpose Report agreement
        11. Special Purpose Report scope limitation
        12. Access to Special Purpose Report - related to documents
        13. Required disclosures to CPA
        14. Submission of Special Purpose Reports
        15. Submission of plan of corrective action
      2. Internal financial reports
      3. Report on central reserves transactions and balances
      4. Tax returns
      5. Term
    3. Fiduciary Reporting Requirements
      1. Compensation information
      2. Modifications of organizational documents
      3. Reporting of any dividend payment with respect to any entity
      4. Reporting of any ownership change with respect to any entity
      5. Reporting on creation of new entities
      6. Reporting of any ecclesiastical modification or the restructuring of any entity
      7. Reporting of certain asset transfers and expenditures
      8. Reporting of certain asset transfers that diminish the assets of the corporate members of the CTCC
      9. Reporting of any amendment of any directive concerning the treatment of funds
      10. Activity or inaction in contravention of this Agreement
      11. Update on operational modifications
      12. Education and training issues under Code section 170
      13. Term of fiduciary reporting under section IV C
    4. Certifications
      1. In general
      2. Section 501 (c) (3)
      3. Continuing certifications
    5. Operational modifications
    6. Treatment of Information Exchanges
  5. Treatment of the Code Section 6104 Public Inspection File and Certain Other Materials
    1. Code section 6104 Public Inspection File
    2. Disclosure of Information by the Service
    3. Disclosure of Information by the CTCC
    4. Proceeding Under Agreement
    5. Disclosure Following Inquiries
    6. Correction of Misstatements
    7. Term of Undertaking
  6. Penalty Provisions During Transition Period and Other Procedural Matters
    1. Introduction: Purpose and Scope of Sanctions
    2. Self-Dealing Transactions
      1. First-tier penalties
        1. On Individual CTCC member who is a self-dealer or who is related to a self-dealer
        2. On Individual CTCC member with knowledge of transaction
      2. Second-tier penalties
        1. On Individual CTCC member who is a a self-dealer or who is related to a self-dealer
        2. On Individual CTCC member refusing to correct
      3. Self-dealing
        1. In general
        2. Special rules
        3. Exceptions
        4. Amount involved
    3. Noncharitable Expenditures First-tier penalties
      1. First-tier penalties.
        1. On Corporate CTCC members
        2. On Individual CTCC members
      2. Second-tier penalties
        1. On Corporate CTCC members
        2. On Individual CTCC members
      3. Noncharitable expenditure
        1. Noncharitable expenditure
        2. Expenditure responsibility
        3. Governing principles
      4. Special noncharitable expenditure
      5. Amount involved
    4. Reporting Obligations
      1. Penalty on Corporate CTCC members
      2. Penalty on Individual CTCC members
        1. Failure to comply with demand
        2. Application of penalties for failure to provide information
      3. Exception for reasonable cause
      4. Exception for inability to certify specific information
    5. Joint and Several Liability and Certain Penalty Limitations for Individual CTCC members
    6. Additional Penalty
    7. Third-Tier Penalty
    8. Procedures for Penalty Determinations
        1. First-tier penalty
        2. Second-tier penalties
        3. Other penalties
      1. Interest
      2. Non-assertion of penalties
  7. Treatment of Parishioner's Contributions
  8. Definitions
    1. Code
    2. Entity
    3. Scientology-related entity
    4. Scientology-related individual
    5. Qualified Written Material
    6. Service
    7. Taxable Year
    8. Transition Period
    9. Agreement
    10. CTCC
    11. Church Signatories
    12. Settlement Agreement
    13. Annual Report
    14. Disqualified Person
    15. Willful
    16. Sanction Period
    17. First-Tier Penalty
    18. Second-tier Penalty
    19. Correction
    20. Correction Period
    21. Church
    22. Commissioner
    23. Assistant Commissioner
    24. Knowing
    25. Reasonable cause
  9. Other Matters
    1. Representations
    2. Notices
    3. Rules of Construction
    4. Entire Agreement
    5. Survival of Agreement
    6. Cost of Compliance with Agreement
    7. Counterparts
    8. Finality
    9. Date of Agreement



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