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RESEOESE TO FIRST SERIES OF QUESTIONS IAQEII Q4; 199I]

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April 24, 1991

QQESIION I

A COMPLETE EISZ OE ALE ENTITIES ASSOCIATED OEAEFILIATED¢ EEEIEEE E! OWNERSHIE, COEIRAQIQALAGREEMENT, OR OTEERIISE, WITHIN IHE CHURCH OESCIENTOEOGY ORGANIZATIQN§I_§TRUCTURE (WHETHER OREOI IHE WORE "SCIENTOLOG!" APPEARS IE THE ENTITY'SNAME}. THIS LIST SHOULD INCLUDE ALL DOMESTIC ANDFOREIGN CORPORATIONS, TRUSTS, ASEOCIETIONSI LEEUNINCORPORATED ENTITIES OR ACCOQEEE [INCEUQIEG LEEEESERVE ACCOUNTS], EEEQHER RELIGIOUS; EEQULQE,EEEMEI, NON-EXEMPT, NON-PROFIT OR ERQEII-ELEING.EACE ENTE! SHOULE IECLUEE A EEECRIPZION QE IEEEETENT {IN TEEES OP INCOME AND EEPENEES, STAFFQIHE ENEEOIED IN ITS ACTIVIIIES| ETC.) QI ITSOEEBATIONE; LEE A LIST OE IIE OEEIQEEE, QIRECTORS,IBQEQEEQ, LEE STOCKHOLDERS.

The principal organizations to which this question relatesare described in the Form 1023 Church of ScientologyInternational ("CSI") filed in March 1990, a copy of which isenclosed as Exhibit I-1.” That application includes anattachment of 69 pages describing the principal organizationswithin the referenced "organizational structure." You should letour representatives know of any specific questions you may haveabout any organization described there.

CSI's Form 1023 describes the churches and missions thatminister the lower levels of Scientology religious services andlists the number of each within the United States and worldwide,but it does not name them. Each such church serves the same roleand operates substantially identically to all other churches;each mission likewise is functionally identical to all othermissions. You indicated that you were not interested inreceiving a list of all such organizations so we have notprovided that information.

There are a few miscellaneous Scientology organizations thatwere not specifically described in the Form 1023 because they are

V Technically, there is no single entity known as the "Churchof Scientology", but for convenience, we sometimes refer to theScientology international ecclesiastical hierarchy of churches --including ecclesiastical support and related social bettermentorganizations -- as the "Church of Scientology" or the "Church".

' '* “cs! PROD HUU 22 1993 229.

relatively insignificant in light of the overall hierarchy(though many were noted or described in other submissions).These organizations are

1. WISE, Inc. WISE, Inc.,? is a Delaware corporationused by Religious Technology Center ("RTC") as its interimnominee for registering Scientology religious marks in countriesthat do not recognize ownership rights of religious corporationsor enforce their contracts. (It was described in the Form 1023RTC filed on March 15, 1990.) In 1985, the Inspector GeneralNetwork ("IGN”) was formed to be the registered owner of the 'religious marks in such countries. The process of transferringregistration of the marks from WISE, Inc., to IGN is ongoing;hence, WISE, Inc., is still the registered owner of the marks ina few countries, but this is its sole function. Once IGN becomesthe registered owner of all the marks, WISE, Inc., will bedissolved.

WISE, Inc., has filed Federal corporate income tax returnson Forms 1120 since its incorporation in 1982. All of its sharesare owned by IGN. It has never paid any dividends.

2. £80 QIQ. FSO Oklahoma Investments Corporation is awholly-owned for profit subsidiary of Church of Scientology FlagService Organization ("CSFSO"). FSO OIC was formed forinvestment in oil and gas properties and real estate. It filesForm 1120 corporate income tax returns and has never paid anydividends.

3. NEE gubsidigrigg. New Era Publications International,Aps ("NEP"), the Danish corporation which publishes anddistributes the Scientology Scriptures outside of North America,carries on its activities in countries where it has majorprinting and distributing operations through locally-incorporatedentities. (These subsidiaries were noted but not identified inCSI's Form 1023.) NEP's subsidiaries are:

N.ENEWNEWNEWNEWNEWNEW

Publications Australia Pty. Ltd.ERAERAERAERAERAERA

F WISE, Inc., should not be confused with World Institute ofScientology Enterprises, a fellowship association of Scientologybusiness men and business women, which has the acronym "WISE" andis discussed separately in the response to question 8.

PublicationsPublicationsPublicationsPublicationsPublicationsPublications

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Italia, S.r.l.Japan, Inc.Deutschland, GmbhFrance, SARLUK, Ltd.S.A. (Spain)

tIEE5EIIEE2EnHInHiHHIElEIlflfilfiiilllllllllnimnssa

NEW ERA Publications Israel (dormant)

None of these subsidiaries has ever paid a dividend.

4. §gg_QIgQmIgg_Egi;g;g§ is a Mexican corporation thatpublishes and distributes the Scientology Scriptures in Mexicoand Central America. Half of its shares are held by theFederacion Mexicana Dianetica ("the Federation"), a Mexicanmembership corporation whose members are local Scientologists.The other half are held by staff of the Federation as nomineesfor the Federation. Since Mexican law prohibits churches fromincorporating, owning property, and exercising other importantlegal rights, Scientology's affairs are conducted in that countrythrough secular corporations, as are the affairs of most otherreligions in Mexico. The Federation is the equivalent of aScientology ecclesiastical management organization.

5. SOR Services Ltg. SOR Services Ltd. is a non-U.S.corporation which performs bookkeeping and banking services forthree non-U.S. Scientology trusts -- Trust for Scientologists("TF8"), which holds advance contributions to CSFSO from its non-U.S. parishioners; Scientology International Reserves Trust("SIRT"), the principal non-U.S. entity for Church reserves; andFlag Ship Trust ("FST"), the trust formed to help effect thepurchase of the vessel to house the Foundation Church ofScientology Flag Ship Organization ("CSFSSO"). These trusts aredescribed in more detail in CSI's Form 1023 as well as inresponse to questions three, four and five, below. SOR Servicesfiles all required annual balance sheets and tax returns, asprepared by its accountants, Grant Thornton. All of its stock isowned by SIRT.

6. I55 gegvigg cgrpoggtigng. As discussed in CSI's Form1023, IAS is a voluntary membership association formed to promoteand preserve the Scientology religion worldwide. IAS is not partof the Church of Scientology hierarchy. It has its own separateboard of directors elected annually from among its members, andit functions autonomously from CSI and the rest of the hierarchy.Nevertheless, information is provided herein about IAS becausethe Service has specifically requested it.

Because IAS is an unincorporated association, it is not alegal entity capable of holding property or carrying out legallycognizable activities and thus must rely on other entities toconduct its administrative and programmatic affairs. Thus, thereare three non-U.S. corporations that carry out various activitieson behalf of IAS pursuant to contract. One, Theta ManagementLimited, assists IAS by providing it membership services 1(correspondence, other direct mail and dues processing) andgeneral banking and bookkeeping services. Another, Membership

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Services Administration Ltd., functions as a relay point forincoming and outgoing mail and for dues, donations and other IASreceipts. It also handles the payment of fundraising commissionsto membership tours and Field Disseminators which promotemembership in and donations to IAS. The third corporation,International Membership Services Administration, N.V. (alsocalled IAS Administrations), is responsible for membershipcommunications and promotional activities, including publicationand distribution of the IAS members‘ magazine IMEAQI.

Each corporation's shares are held for the benefit of theIAS. Each corporation pays all required taxes and files allrequired tax returns and financial statements with theappropriate offices in their countries of incorporation; thesereturns and statements are prepared by their accountants, eitherGrant Thornton, or Coopers & Lybrand Dijker Van Dien.

7. European Association fog Scientology, a Danishnonprofit membership corporation formed to facilitate membershipfunctions in European countries that do not recognizeunincorporated associations, was briefly mentioned in CSI's Form1023. Its sole members are four European Churches of Scientology—- Church of Scientology Religious Education College (U.K.),Church of Scientology Advanced Organization Saint Hill Europe andAfrica (Denmark), Church of Scientology of Sweden and Church ofScientology of Deutschland (Germany and Austria). Its annualfinancial statements are prepared by Deloitte, Haskins and Sells.

8. Qggigh gssggiagiog of Scigggglogiggg is an associationof Danish churches formed to coordinate matters of commoninterest among local churches and to appoint delegates torepresent the Danish churches at the annual IAS convention. Ithas been ruled tax-exempt by the Danish authorities. Its solemembers are the four Danish Scientology churches -- Church ofScientology Advanced Organization Saint Hill Europe and Africa,Church of Scientology Jylland (Arhus), Church of Scientology ofDenmark and Church of Scientology of Copenhagen. Its annualfinancial statements are prepared by Deloitte, Haskins and Sells.

9. flggggggggh is a California for-profit corporation whichis wholly-owned by the World Institute of Scientology Enterprises("WISE"). It is licensed by CSI (through WISE) to produce andsell the "How to Operate a Computer Course" which is anapplication of Mr. Hubbard's study technology to using a 'computer. Mastertech files Form 1120 Federal income tax returnsand has never paid a dividend.

I10. gglifigggia Association of Qianegig guditggg ("CADA")is a nonprofit corporation created by CSI in 1987 to reserve thatcorporate name in order to protect the integrity of the religious

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CSI PPUF NU” :2 1991 22:8II I I I — -. .

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mark ”Dianetics." It was and has remained a wholly dormantcorporation.

11. BIQ Austgalig - In 1986, RTC contemplated theestablishment of continental level offices in California, theUnited Kingdom, Europe and Australia. RTC Australia wasincorporated to be the Australian continental office and wasrecognized in Australia as tax exempt. RTC subsequently decidednot to establish these continental offices. RTC Australiaremains in existence although it is wholly dormant. It hasminimal assets, has never received any income and has never paida dividend.

These eleven entities, together with the entities discussedin CSI's Form 1023, constitute all of the entities presently inexistence which can be considered as "affiliated" withScientology. Attached as Exhibit I-2 is a list of the officers,directors, trustees and shareholders of each of the existingentities identified here or in CSI's Form 1023 which are part ofthe Church of Scientology ecclesiastical hierarchy as ofApril 24, 1991. A summary description of each of theseorganizations and the extent of its operations is provided inresponse to question 2. .

A large number of Scientology organizations thus are nolonger in existence. A question came up at the March 7 meetingwith respect to some of these entities that no longer are inexistence. Specifically discussed was IMU Services, Inc.,? aswell as certain entities about which the Service had raisedquestions late in the course of CSI's first exemption proceeding.The principal reason for these changes involved the consolidationof U.S. and non-U.S. Church reserve entities. Prior to 1989,there were a number of separate U.S. and non-U.S. reserveentities, primarily trusts, each for a specific reserve function.Most of these were dissolved before the end of 1988, leaving twoU.S. entities -- Building Management Services, Inc., and Churchof Scientology Religious Trust ("CSRT") -- and two non-U.S.entities -- Scientology International Reserves Trust ("SIRT") and

9 At the March 7 meeting, Mr. Owens suggestedlthat theService knew absolutely nothing about IMU Services, Inc. As ourrepresentatives discussed, however, IMU Services filed Form 1120corporate income tax returns for all the years it existed -- 1985through 1988 -- and recently had undergone an audit of its 1986-1988 taxable years by the Service's Jacksonville, FloridaExamination Division. IMU Services has filed an action in theTax Court to challenge the only adjustment proposed by theexamining agents. ggg Ifly Segvigeg, Inc. v. Qgmmisgigggg, TaxCourt NO. 27695-90.

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I I 051 PROD new 22 1993 '2 ->-8 =IJ U 0 r/1 ‘J

Flag Ship Trust. These four reserve entities are described indetail below in response to questions three, four and five. Thevarious Scientology entities about which the Service haspreviously inquired which are no longer in existence, and theorganizations receiving their assets on dissolution, are asfollows:

Di§§Ql!§Q_ED£i£! EesinientIMU Services, Inc. IMU Administrations ApS9International Scientology SIRT

Films TrustInternational Scientology CSRT

Religious TrustInternational SOR Trust SIRTScientology International Missions Scientology Missions

Trust InternationalSOR Management Services, Ltd. C of S Religious Education

College, Inc. ("CSREC")?U.S. Churches of Scientology CSRT

Trusty

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9 IMU Administrations ApS itself was dissolved and its assetsdistributed to the Danish Association of Scientologists,described above.

y CSREC is the corporation housing the Advanced and SaintHill Organizations and other Church organizations in the UnitedKingdom.

Q As stated in its trust instrument, USCST was formed for thedefense, propagation and dissemination of the religion. Theseare some of the many purposes for which central U.S. reserves arekept by CSRT. CSRT recently underwent an EP/EO examination inwhich the agent recommended no change in CSRT's section 501(c)(3)exempt status. That examination included 1988, the year in whichUSCST was dissolved and its assets transferred to CSRT; theexamination specifically looked at all of CSRT's receipts as wellas its disbursements.

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' A" "csr PROD uou 22 1993 (229s s04

QQESIION Z

LE ORGANIZATIONAL CHART SHOWING IHE {LACE EEQEEEETIONSEIE OE EACH EEIIT! IN IHE STRUCIURE.

A single organizational chart is impracticable because ofthe number of different entities and the numerous and disparaterelationships among them. Scientology is an international _religion, encompassing many different functions and operating in69 countries around the world. Instead, we have prepared andincluded four separate organizational charts, attached asExhibits I-3 to I-6, one for each major function. Each separatechart shows, as requested, the place and relationship of each ofthe various entities in the ecclesiastical and corporatestructure. Attached to each organizational chart, for yourconvenience, is a brief description of each organization shown onthe charts. As you requested in question 1, these also includedescriptions of the extent of each organization's operationsthrough references to the size of the organization's staff andthe size of its budget.

Exhibit I-3 is an organizational chart showing the entitiesdirectly involved in the ministry of religious services toindividual parishioners, and their ecclesiastical supervisorybodies. This chart represents the heart of the religion -- morethan 700 churches, missions and groups operating in 69 countriesaround the world.

Exhibit I-4 is an organizational chart showing the variousentities involved in the support, defense and expansion of theScientology religion; included are those entities that existsolely for reserve purposes, and certain entities which, in thecourse of their activities, use their funds and property in amanner that accomplishes reserve purposes.

Exhibit I-5 is an organizational chart showing the variousentities which are responsible for the production, publicationand distribution of religious materials, including the Scripturesand E—Meters.

Exhibit I-6 is an organizational chart showing the variousScientology entities that are involved in social betterment andother public benefit activities. This chart, however, does notinclude individual churches of Scientology, which themselvesengage in social betterment and other community outreachactivities such as anti-drug campaigns, environmental improvementand assistance to children, senior citizens, the homeless andother neglected individuals.

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Exhibit I-7 is a summary description of the Scientologymembership system, i.e. the IAS, various regional and nationalmembership organizations and various membership service andsupport organizations, which are not part of the ecclesiasticalhierarchy.

Exhibit I-8 lists various other Scientology organizationswhich, while not part of the ecclesiastical hierarchy, weredescribed to the Service in CSI's Form 1023 or herein or aboutwhich the Service has expressed concerns.

QUEEZION Q

LE EEELEEEEION OF EOW OPEEETIONEL LEE EINANCIEEAHIHQBII1_1E_IZEBQI§§Q_1E_IE§_QB§AEI1AIlQ!ALETEUQZURE, INCLUDING E COMELETE QESCRIZTIOE OE QEEAEIHQE1I1_QBEAIIZAIIQE2_A1_1Hl_Hl§E§§I_LE!EL_HA!lOVEE EIE-LEZEL AND LOWER-LEZEE ORGANIEEIIOEEQIRREEBEQIIVE OE ZEE ACTUEE ECZIVIIIEE EEEEOEEEQ.IEIS SHOULD ALSO INCLUDE A DESCRIETIOE OE THE FEESEEEEING OEZICE SYSTEM EEE IHE AMOQEI Q1 QOEIEQE QEEEQ EEEEIEG OFEICEB HA§ WITH RESEECT IO HIS OREEE AEEIGNED ORGANIZATION. ‘

QUEEIIOE Q

AE_I1ELAMDII!E_2I_!IQ_I3§BQl§§§_§QEHB!L_!!IE_1ElEEIIIIEE. §PECIEICALEY¢ EEEI IEEIVIEQEL OEIEQIZIQQALQ_EAZI_QEQ1Q1Q!_EA£1H§_AEIHQE111_£QBEQQLI2IA§IIQALL_QQE2QBAI§x_L§§ALx_QB_II!A!£lALEAIIIB§_AIIEQII!§_ALL_QE_§QH§_I!IIII§§_1H_IHlQQIE!IQLQQ1_QIBEQIEEEI__I!l§_I§2LAEAIIQ!_§§Q!LD2EQQBIII_HQ!_QEBBEEI_2§§l§lQ!:!ALl!§_AQI§QBIIIQIIIEBE_IEQH_IEAI_EEEEQL§§D_§1_Lm_BQE.EE§§ABD_IHIHI_IIHI_Hl_£Q!IBQLL§Q_IH]_£H!EQHm

_ 3 _

N CSI PROD HUU S22 1993 ' 2.29845?

QUESIION §

A_E£§QEI2TIQ!_Q£_2EE_£L0! Q£.EENQS_QS_Q1S§B ASSETSazzggzu ggp ggonc snmrgzzs grncnunrgs ggsgnvg gg ggggggcgoggggy, gggmnrn SEQULAR on nznrcrons, QOMESTIQ 93FOREIGN. gags saounp snow rag PETE AND ULIIMAZEDESIINATION OP FUNDS SENT OVERSEAS. "FQEES OE OTHEEASSETS" NC UDES NTANGIBLES AND ALL_EINANQIALIEETRQEENTS, WHETHER OR NOT THEY ARE QQNSIDEREE CASH OEQE§E_EQUIYALEETS. FOR EXAMPLE, THE TERM INCLUDESNOEEEGOIIEELE NOTES, UNENDORSED PERSONAL CHECKS; ANDSECQEITIEE ERANSFERREE EETWEEN ENTITIEEI WHEZHERPHYSICALLY OR ELECTRONICALLY.

At the March 7, 1991 meeting, you determined that thesequestions were closely related and should be answered together.You also indicated that you were interested in decision-makingauthority involving the flow of funds and financial matters andnot those relating to actual conduct of religious services ornonfinancial administrative or operational matters. Ourrepresentatives pointed out that detailed and extensiveinformation on this authority had been provided to you in theexemption determination proceedings involving CSI, RTC and CSTand in the church audit inquiry proceedings involving theFounding Church of Scientology of Washington, D.C., Church ofScientology Flag Service Org, Inc. ("CSFSO"), Church ofScientology of Boston, Inc., and Church of Scientology WesternUnited States ("CSWUS").

What follows is a compilation of the information containedin these prior presentations, updated to reflect a few minorchanges that have occurred since. First, we describe the generalflow of funds, for both churches and non-church Scientologyorganizations, including how funds come in and how funds are thendisbursed or placed in reserves. Second, we explain theauthorization process for disbursements, including thedisbursement of reserve funds.

Needless to say, the Church's ecclesiastical structure istoo complex to portray the flow of funds to, among and from thevarious churches and their related organizations through anypictorial representation. After a great deal of experimentation,we have concluded that the best way to depict this flow is on anorganization-by-organization basis. Consequently, attached asExhibit I-9 is a table for each distinct church and nonchurch

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' C-‘SI PROD NO’-J E2 1993 he4*

organization within the hierarchy? that identifies the natureand source of each significant receipt, the nature and recipientof each significant disbursement, and the relative percentage ofeachy for the most recent year for which an annual financialstatement is available for the organization (generally 1989).

The primary source of funding for the Scientologyecclesiastical hierarchy is its congregation -- the thousands andthousands of individual Scientologists throughout the world whocontribute to their missions or churches in order to receiveScientology religious services, books and materials.Ecclesiastic management organizations like CSI, ScientologyMissions International ("SMI") and International HubbardEcclesiastic League of Pastors ("IHELP") are supported by thechurches, missions, and field ministers that they manage (bytithes in the case of SMI and IHELP and by management? and filmlicense payments in the case of CSI). 1 _ ii

y You previsouly indicated that you were not interested inspecific information about Class V churches and missions;accordingly, we are including in Exhibit I-9 a sample Class Vorganization and a sample mission. Because the four Advanced andSaint Hill organizations -- housed in CSWUS, CSREC, Church ofScientology Advanced and Saint Hill Organization Europe andAfrica and Church of Scientology, Inc. -- are operationallyidentical organizations, we have included in Exhibit I-9 only onesuch organization -- CSWUS -- as an example. The informationincluded on Exhibit I-9 with respect to CSWUS is for the entirecorporation, which also includes an intermediate levelecclesiastical management organization (the Continental LiasionOffice Western United States), a separate division which providesaccommodations for Church staff at the Church's main Los Angelescomplex, and a Class V church organization.

Y We have compiled the attached tables from financialinformation for the various organizations in our possession. We,however, do not have detailed financial information with respectto most of these entities and, therefore, all percentages areapproximations and not every source of receipts or recipient ofdisbursements can be identified. Nonetheless, we believe thesetables present an accurate picture of the flow of funds. Forconvenience, any category of receipt or expenditure that makes upless than one percent of the total has been omitted.

9 The amount of management fees paid to CSI is determinedweekly by each church's Flag Banking Officer in light of theamount owed CSI and the local church's own needs. The paymentgenerally averages five to ten percent of local church's weeklyreceipts. Larger churches pay proportionately more.

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CSI PPOF HO" If 1QQ'~T 22984-

The Church of Scientology's more secular-orientedorganizations also rely on the general public for their financialsupport. The social betterment executive and managementorganizations derive their financial support from contributionsand grants from the general public and from payments from localsocial betterment organizations for services or books. Localsocial betterment organizations and some national organizationsare funded primarily by contributions and grants from the generalpublic and grants from Scientology organizations. The church'spublishing organizations -- New Era Publications InternationalApS and Bridge Publications, Inc. -— are supported primarily bysales of books, tapes and materials to Scientology churches andother organizations and, to a much lesser extent, sales to thetrade.

Once funds are received by a church or other organizationthey become subject to Scientology ecclesiastical administrativepolicy and are administered through the Church's "FinanceNetwork." The Finance Network is one of seven "networks" in theScientology religion that perform specific functions necessaryfor expansion such as program development, execution andmanagement and finance. Like the other networks, the FinanceNetwork is administered by CSI's staff.

The Finance Network is responsible for all matters relatingto the financial affairs of the hierarchical church, includingbudgeting and reserves. It coordinates the needs of the Churchthrough weekly, monthly and annual budgets and financial planningthroughout the entire network. The operation of the FinanceNetwork is described in detail below by describing the flow offunds to a typical Scientology organization and by tracing theflow of funds to the higher level organizations and to theorganizations which receive and expend reserves. This isfollowed by a description of the functions, activities andauthority of CSI in relation to the finance and reserves systems.

The Flag Banking Officer ("FBO") is the ecclesiasticalequivalent of a "Treasurer" or "chief financial officer" in thesecular world and most often holds that corporate position. (Thesame position in a Scientology non-Church organization is calledthe "Finance Director.") The FBO is responsible for assuringthat the church remains solvent and abides by Scientologyadministrative policy with respect to the expenditure of funds.The FBO has executive ecclesiastical authority and is at the samelevel as the church's senior executive officer. As chieffinancial officer, the FBO has final authority to approve ordisapprove the church's weekly financial planning.

As discussed in more detail in CSI's protest, the financialstaff personnel in the various churches have higher authority

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than the other staff members of the church with respect to thematters under their authority. Each FBO therefore has superiorsin the ecclesiastical hierarchy up through the Finance Networkand ending with the CSI staff position of FBO International.

Missions, nonchurch organizations, and churches deposit thefunds they receive directly in their bank accounts even though,in the cases of churches and missions, the services for which thefunds were contributed may not be provided until far in thefuture. Two higher—level churches (CSWUS and CSFSO) forwardtheir advance contributions to trusts established for the benefitof the contributors to hold until the contributor actuallyreceives the services for which the contributions are made. Thissystem ensures that the funds will be available in the event theparishioner desires that the contributions be refunded or appliedto another purpose before the contributor actually receives theservice. Two trusts have been established to administer theseadvance contributions.

One trust, United States Parishioners Trust ("USPT"),receives advance contributions of United States parishioners toboth CSWUS and CSFSO and holds them in trust subject toappropriate instructions from contributors. USPT pays theadvance contribution to CSWUS or CSFSO at the time thecontributing parishioner receives the religious service inquestion unless the contributor directs that the contribution betransferred to another church of Scientology (so the contributormay obtain services there) or be refunded. USPT also holds bondsissued by CSFSO and BMS that are secured by mortgages on theirproperties, and it receives mortgage payments (includinginterest) from them. As required by USPT's trust instrument, itdistributes any income earned on its corpus (including mortgageinterest) for purposes of the Scientology faith that areconsistent with section 501(c)(3).

The second trust, Trust for Scientologists ("TFS"), receivesadvance contributions from non-United States parishioners forreligious services at CSFSO and holds them subject to thecontributors‘ instructions. Like USPT, TFS will either pay theadvance contribution to CSFSO when the contributor receives thereligious service, or requests that the contribution either betransferred to another church or refunded. TFS also mustdistribute its income for purposes of the Scientology faith thatare coneietent with section 501(c)(3).

Each church initially banks receipts in one of several bankaccounts the church maintains, called its "F0 [Finance Office]No. 1 Account." The funds will stay in this account until thebeginning of the following week, at which time they aretransferred to other accounts according to Scientology

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“ CSI PROD HOU J32 1993 ' .2;?9'=3'41

administrative policy. (These accounts are described below.)This policy requires that funds be allocated in a way thatassures that the needs of both the specific church and thereligion as a whole are met. Under this system, amounts areautomatically allocated to certain expenditures pursuant to aweekly report form. (CSI provided you a copy of a typical weeklyreport form with its protest in the administrative proceeding forits first Form 1023.) This allocation includes recurringpayments to other Scientology churches (such as film licensingfees to CSI, etc.) and the organization's own budget (called its"financial planning"), which is prepared on a weekly basis.

A church prepares its weekly financial planning (or "FP") atthe close of each week on the basis of its receipts for thatweek. The FP is initiated at the "divisional level" EachScientology church (and secular organization that followsScientology administrative policy) is divided into sevenDivisions, one for each facet of an effective program ofreligious activities (or charitable or educational activities inthe case of nonchurch organizations). As the initial step, eachof the church's seven divisions will prepare a budget for theanticipated expenditures of the division during the next week.When all these budgets are combined they constitute the church'sproposed FP for the week. The proposed FP is reviewed by twostaff committees -- the Advisory Council, which is composed ofthe heads of the church's seven Divisions, and the ExecutiveCouncil, which is composed of the church's most senior staffmembers. The FP is accepted, revised or rejected on a line itembasis, and the resulting FP becomes the authorization for churchexpenditures for the following week, subject to final approval bythe FBO.m' The FBO is responsible for assuring that thechurch's receipts for the week are actually disbursed as requiredby the allocation form and the approved FP.

19 The preceding discussion assumes that the churchcorporation in question houses only one ecclesiastical"organization," as is the case for most churches. However, manychurch corporations higher in the ecclesiastical hierarchy housemore than one ecclesiastical church organization within itscorporate form. For example, CSFSO houses the Flag Service Org,which ministers services to parishioners, and the Flag EstatesOrg, which operates and maintains the physical facilities used bythe Flag Service Org. When there is more than one ecclesiasticalorganization within a corporation, each organization will oftenhave its own Treasury Division, Flag Banking Officer, bankaccounts, etc, which often results in transfers of funds betweenaccounts within the same corporation.

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CSI PROD HOUNEE 1993 R 229S'

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At the beginning of each week, the FBO will disburse fundsfrom the church's F0 No. 1 account to the appropriate recipientor other account in accordance with the FP approved for the week.The principal account receiving transfers from the F0 No. 1account is the church's "Main Account," from which funds aredisbursed for the payment of its day-to-day costs and expenses inaccordance with the FP. Another principal recipient account isthe Book Account, which receives all funds derived from the saleof books, E-Meters and other items by the church bookstore thatwere deposited in the FO account. The only disbursementspermitted from the Book Account are for the purchase of books andE-meters, the payment of book commissions and for a limitednumber of other church expenses. Other recurring principaldisbursements include film licensing fees and management paymentsto CSI by all churches, tithes to SMI in the case of missions orto IHELP in the case of field ministers, and licensing fees toRTC for the use of the Advanced Technology, in the case of higherlevel churches. Such disbursements are identified inExhibit I-9.

Scientology administrative policy requires that each churchmaintain the following additional accounts:

1. Lgggl ("O;g") Besegveg. An account for reserves of thechurch for local purposes (such as the expansion of churchfacilities). This account is not the same as the centralreserves system of the hierarchical church, which is discussedbelow.

2. genegai Liability Fung. An account for reserves forunanticipated liabilities, such as attorneys fees or other costsand expenses arising from litigation. Funds in the GLF accountare intended for the particular purposes of the local church,rather than for the general purposes of the religion.

3. £§fl_Aggggg;. An account for the payment of Field StaffMember commissions for their assistance in fundraising.

4. §gA_5ggggn;. It is the policy of the Church thatparishioners who complete a religious service should receive a"Service Completion Award." Awards are disbursed from thisaccount.

5. §!fl_Aggggn§. Amounts are deposited in a "ClaimsVerification Board" account whenever a parishioner requests thereturn of a fixed donation and are kept until the request isabandoned or met.

14

CSI PPOF HO" .21 1°C“? ...Z‘9'-I 31- "?=I ‘I ' \' U. —. i

6. Bg§g;ggg_£g1mgnt_AggQgg§. This account is used to setaside funds for payment of bills which are not yet due or whichhave been questioned as to amount or liability.

7. E0 fig. 3 Account. Amounts are deposited in thisaccount to pay anticipated local expenses of missionaries sent tothe church by a higher-level organization and for local expensesof higher level ecclesiastical organizations.

8. {Q N9. 3 Account. Amounts received by the church whichdo not fit in any of the usual categories of receipts of aScientology church, or which must be held in suspense for anyreason, are kept in this account.

Like other hierarchical churches, the Scientologyecclesiastical hierarchy maintains a central reserves system tofund important long-term and extraordinary projects that benefitthe entire faith such as capital development, dissemination anddefense. These central reserves are managed within theecclesiastical hierarchy's Finance Network by individuals servingon CSI's staff.

Reserves accounts are funded through different procedures,depending on the church or trust that owns the particular accountin question. Most churches and IHELP participate in the reservesystem indirectly through their weekly payments to CSI (which arecredited against CSI's billings for ecclesiastical managementservices). CSI deposits these funds directly in its centralizedreserves accounts and uses the funds for purposes that benefitthe religion as a whole rather than for its own routine operatingexpenses. SMI and higher churches of the hierarchy -— CSWUS,CSFSO and Church of Scientology Flag Ship Service Organization("CSFSSO") -- also fund their own reserves accounts directly.Each week, CSWUS, CSFSO and CSFSSO allocate their receipts amongtheir operating expenses, including their licensing fees to RTCfor use of the Advanced Technology and their film licensing andmanagement fees to CSI, and any required payments to advancepayment trusts (for CSWUS and CSFSO). These represent all oftheir recurring expenditures; any excess of receipts over theseexpenses is transferred directly to their reserves accounts.Nonchurch organizations like ABLE and WISE also directly fundtheir own reserves accounts, if they have one, with any excessfunds they may have.

Scientology ecclesiastical policy would have all Scientologychurches and organizations participate in the central reservessystem. In practice, however, the primary contributors toScientology reserves are CSI, CSFSSO, CSFSO, CSWUS, SMI, and

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cs! PROD new 22 1993 '1 229s4=

-/

'1

WISE.u’ In addition, three Scientology religious trusts and onecorporation participate in the reserves system by functioninglike special endowment and grant—making entities or by holding,managing or financing real estate. These four reserves entitiesare:

1. u c 'ento o el' ' us ust " S " . CSRTholds the mortgages on several buildings owned by variouschurches of Scientology (Churches of Scientology of Austin,Buffalo, Las Vegas, Philadelphia, Sacramento, San Francisco andSanta Barbara) for which it receives mortgage payments (includinginterest income). CSRT also receives contributions fromindividual Scientologists. CSRT makes grants to individualchurches (including CSI), finances long-term or extraordinaryreal estate projects, and generally uses its funds to further thereligion. As noted above, CSRT has been recognized as exemptunder section 501(c)(3) and has successfully completed anexamination of its tax status with the recommendation by theexamining agent that there be "no change" in its status oroperations.

2. Sciegtgiggy Igtegnationai Reserveg 1;u§§ ("glgl").SIRT essentially performs the same function as CSRT except thatit serves non-U.S. entities. For example, SIRT holds mortgageloans to Scientology churches in Canada, Europe and Australia,which now pay SIRT on their debt as they can. SIRT uses itsfunds for the defense and dissemination of the religion and forreal estate projects. Most of its disbursements have been to paythe legal defense costs of churches and church staff located inforeign countries.

3. Elgg Ship Igust ("FSZ"). FST holds funds dedicated tothe furtherance of the Scientology faith contributed byScientologists throughout the world. FST also effected thepurchase of the Scientology ship, the Eggggiggg, and is the soleshareholder of three corporations that perform the secularfunctions necessary to support an on-vessel church. FST now usesits endowment to fund grants to Scientology churches to financereal estate projects and general operations.

U’ While the reserves of nonchurch entities such as WISE andABLE are under the ecclesiastical supervision of the ReservesCommittee, their reserves are used only for their own secularpurposes.

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' " "CSI PROD NOD 22 1993 2298'

J

4* LO

4- Sui1QinQ_Manassment_SerxissS_l£BSS£l- BMS is anintegrated auxiliary of CSI and holds title to buildings inSouthern California leased by CSI, BPI, CSWUS, CCI, CSLA, SMI,WISE, ABLE and CSC. It pays USPT interest on bonds that theseproperties secure.

In general, each of the churches, trusts and otherorganizations identified above maintains reserves in at least two

- separate U.S. dollar bank accounts: one local account (usuallyin Los Angeles) and one in Luxembourg. Some churches andnonchurch organizations maintain separate reserve accounts forthe foreign currencies they hold. Lower churches generallymaintain only local accounts, although occasionally they also maymaintain an account in Luxembourg (none do currently). The twotrusts for advance contributions, USPT and TFS, while nottechnically reserves entities, also maintain accounts inLuxembourg.

The specific such accounts (which may not necessarily havecredit balances) maintained by the principal church corporationsand trusts are:

Local Account Lugempgugg ggggggg

Other Othermmhms Qmummum .Ei@fii§m1£&E&

I

CSISIRTCSRTFSSOFSOCSWUSSMIWISEABLEUSPTTFSBMSFSTMajesticIPTSan Donato

YesNoYesYesYesYesYesYesYesNoNoYesNoYesNoNo

NoNoNoYesNoNoNoNoNoNoNoNoNoYesNoNo

YesYesYesYesYesYesYesYesYesYesYesYesYesYesYesYes

YesNoYesYesYesNoYesYesNoNoNoNoNoYesNoNo

Transcorp No No Yes NoSOR Services Yes Yes Yes No

The ecclesiastical body within the hierarchical church'sFinance Network with primary responsibility for managing centralreserves is the Reserves Committee. At present, each member ofthe Reserves Committee is a full-time staff member of CSI holding

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N CSI PROD HOU 22 1993 ' 229849

a high ecclesiastical position. The purpose of the ReservesCommittee is to ensure that central reserves are kept safe,expended only for purposes of the religion, and are increased toassure continued expansion of the church and broader defense anddissemination of the religion. A principal function of theReserves Committee is to approve or reject on a line item basisweekly proposals for expenditures from central reserves. Thisweekly budget is compiled from all requests from all churches forany funding from central reserves.

A proposal for an expenditure from central reservesgenerally is prepared by a staff member responsible for theactivity or purchase for which funding is being requested andsets forth complete details of the proposed expenditure(including how it will further the goals of the religion and thechurch). The proposal is initially reviewed by the immediateseniors of the staff member who prepared it and eventually by theorganization's Advisory Council and Executive Council. Theproposal then is sent to the Reserves Committee along with anyother proposals from that church.

The Reserves Committee itself consists of five CSI staffpersonnel -- WDC Chairman, WDC Reserves, International FinanceDirector, SOR Chief, and Reserves Board Finance Officer. Thespecific responsibilities and functions of each of these membersare:

1. HQ§_§nQiIEQQ. WDC Chairman, CSI's most seniorecclesiastical official, chairs the Watchdog Committee ("WDC"),which oversees the ecclesiastical management structure of theChurch. WDC Chairman serves as the chief executive officer ofWDC.

2. flQ§_3g§g;yg§. WDC Reserves is CSI's highestecclesiastical authority with respect to central reserves. WDCReserves is the member of WDC who oversees the finance networkand reserves system of the religion. WDC Reserves has theresponsibility of keeping WDC informed as to all financialmatters of the Church.

3- - The InternatiemlFinance Director is the senior ecclesiastical official of theInternational Finance Office. The International Finance Directoroversees operation of the International Finance Network, whichsupervises all financial planning and financial operations forthe hierarchical church and has ultimate responsibility formanaging the receipts, expenditures and reserves for thehierarchical church. The functions and activities of the variouscomponents of the International Finance Office are explained in

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C-“SI PROD HO’-.-'1'-3.2 1993 N -U1 an

Exhibit I-10, which had been included with the protest CSI filedin its initial proceeding.

4. O ese ves Chief. The Sea Org Reserves Chief("SOR Chief") is responsible for supervising the use of funds incentral reserves. Since a major use of central reserves is topurchase or renovate real estate, one of SOR Chief's mostimportant duties concerns the status of the church's needs withrespect to land and buildings. The SOR Chief directly supervisesstaff with responsibility to coordinate the real estate needs ofthe various churches. The SOR Chief also assures that sufficientfunds in the reserves budget are allocated for broaddissemination.

5. geserves Elag Banking Ofiicer. The Reserves FlagBanking Officer ("RFBO") (formerly called Reserves Board FinanceOfficer) is responsible for collecting all separate budgetaryproposals into a single budget and for overseeing actualexpenditures from reserves. The RFBO prepares the weekly budgetfor approval and presents it first to the full Watchdog Committeemeeting as a Financial Planning Committee. Once the Committeeapproves the budget, with or without changes, the RFBO presentsit to the Reserves Committee for final approval. One of theRFBO's important duties is to monitor projects that depend orwill depend on reserves for financing, including those in theearliest stages of planning. This function benefits both theReserves Committee -- by keeping it informed of anticipated needs-- as well as the organization preparing the proposal -- bygiving its personnel realistic guidance on financial mattersearly on in the planning process.

Ideally, proposals for expenditures from central reserveswill be prepared long before the expenditure is necessary so theycan be incorporated into the Finance Network's annual budgetprojections for large, known expenses and into proposed projectsfor the upcoming year. These long-term budget projections areused to establish a stable base against which more detailedbudgets are developed for each month and week of the ensuingyear, as well as for coordinating with management on planning andexecution. However, since the need for funding from centralreserves can arise at any time during the year, organizationsoften submit their proposals for reserves expenditures when theneed arises. Regardless of when submitted, all proposals areprocessed by the Reserves Committee under the same procedure, asoutlined above.

The Reserves Committee does not have unfettered control overreserves accounts, however, if a proposal involves any large,unusual expenditure for a particular church or trust, it must beapproved by the Board of Directors or Trustees of the church or

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csr PPOF HO" 2: 199? -2°8- ' ' ‘ -3 e Ln I--s

trust concerned, but only after ecclesiastical approval bymanagement and financial approval by WDC and the ReservesCommittee.

Once the Reserves Committee has approved the weekly reservesbudget, staff are authorized to activate their plans, incur theexpenses, and monitor expenditures to ensure they are kept withinthe approved budgeted amount. Bills incurred against previouslyapproved weekly reserves budget are sent to the ReservesDisbursements Officer, who coordinates disbursements fromreserves accounts and arranges for their payment pursuant toScientology administrative policy.

Religious Technology Center ("RTC"), being the owner of theScientology religious marks, is vested with ultimateecclesiastical authority and responsibility to preserve, maintainand protect the religion. RTC does not participate directly inthe Scientology central reserves system. However, RTC approvesany major planning by CSI that affects the use of the Scientologymarks, which would include projects affecting the marks requiringmajor disbursements from Reserves for funding.

The method of funding very large expenditures variesdepending on the facts of the particular proposal. Someproposals include requests to set aside funds towards a largepurchase or program that will not be implemented until thefuture, usually within six months. Funds approved for set asidestowards a future expenditure may be retained in a separate bankaccount called the "Reserve Payment Account." When a very largedisbursement is anticipated for the future, such as the purchaseof a multi-million dollar building, but the exact property,payment date or purchase price is not yet determined, funds willbe built-up in reserves for the large purchase even though notnecessarily placed in a segregated account. Similarly, if theexpenditure will be made in stages over a long period of time, aswith the renovation of a building or certain disseminationprograms, funds also will be built-up in reserves, though notnecessarily placed in a separate account. Here, amounts will bedrawn down regularly as approved in the weekly disbursements.

Thus, disbursements from a church's reserves accountgenerally go directly toward a particular project or program.Disbursements from CSFSO's reserves accounts, for example, mayfund a dissemination project by purchasing air time on televisionstations in the United States to broadcast a program or spot onthe classic introduction to the religion -- the book Qigng;ig§i_Ihe_flgQg;n_§gigQgg_9fi flggtgl Health. Or CSFSO may usedisbursements from its reserves account to finance theacquisition of a church building in Clearwater, Florida.Whatever the particular purpose, any disbursement from a church's

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O 0 l'_,] Ln71 csr PROD ~0u 22 1,, 2293 >

reserves account also will be reflected on the church's ownfinancial statements.9’

QUESTION 6

LE EXPLANATION OF THE DISTRIBUIION OF IHE ASSEISOE THE UNIIEE STLTEE CHURCEES OF SCIEEIOEOG!IBQ§Ix_EE1QH_!§.EFD§B$TANQ.WA§_DL§§QL!§Q_l!_l2§!e_THIS SHOUEE INQEUDE A DESCRIPTION OE LEERECIEIENTE AND THE ESE TO WHICH THE ASSETS ELVEEEEN EUI. EEE EXPLANATION SHOULE IDEEEIFI LE!EEEII! OR EEZIEIES IHAT ELVE QAREN OVER FUNCTIONEFOEEERE! EERFORHED E! THE UNITEE STAEES CHURCHESQE ECIENTOLOG! TEUS2.

See response to question 1 and n.6, supga.

QE§§I1Q!_l

AH_E32LAEA1IQE_QI_AHI_QQ!Hl§§lQ!_QQH2E!§AIlQHSIEIEHE_HEID_EX_§QIEHIQLQQX_EEI1I1E§s__IHI§_§HQ!LD ’INQLHDI_A_DISQEI2I1QE_QI_lEI§E!AL_QQ!IEQL§x_1IAEII_IQ_IEQQB§_IEAI_ALL_lNQQ!E_IAZ_Ri2QBI1!§LEQQIREEEEIS ARE MEI FOR CONHISEIOEE ELIE.

The commission compensation systems used by Scientologyorganizations have been described to the Service in detail on anumber of occasions. Two types of commissions are paid.

First, church staff whose duties involve them in suchmatters are entitled to receive small commissions on their salesto parishioners of religious literature and materials; suchcommissions are paid from church payroll accounts and arereported to the IRS as part of such individuals' W-2compensation.

Second, individual Scientologists called Field Staff Members("FSMs“), most of whom are not on staff of any churchorganization, proselytize the public and direct those interestedto the nearest church. For these services, churches compensatetheir FSMs ten percent of amounts such parishioners contributefor religions service and 15 percent of amounts contributed for

1? Accordingly, reserves disbursements are reflected in thevarious disbursement line item categories listed in the cash flowtables included herein.

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‘ A '05 PROD HLU 22 1993 22995:

religious (ministerial) training.u’ FSMs are compensated gnlywhen the individual begins receiving services, not when thedonations actually are made. In addition to placing thecommissions system in its appropriate contextrw this alsoserves to assure that commissions are paid only to those whotruly earn them. FSM commissions paid to individuals arereported on Form 1099s when required; no reporting of commissionspaid to Churches and church corporations is required.

There are adequate financial controls to assure that acommissions are properly reported to the IRS. FSM commissionsare paid from segregated bank accounts solely for these purposes,which serves to assure that such payments are properly reported.The individuals with signatory responsibility for such accountsalso are corporately and ecclesiastically responsible for thepreparation and filing of the required tax returns. Theirsuperiors within their own churches oversee their work to assurethat returns are prepared, and CSI occasionally queriessubordinate churches to assure that all such filings have beenmade.

Additional financial controls are currently beingimplemented. Much of the financial record keeping for churchorganizations has now been computerized, and revisions to currentprograms are underway that will allow for the automatic transferof payroll and FSM commission data for preparation of therequired returns, including automatic reminders of filingrequirements. In the FCDC church tax examination and the 1988on-site review of RTC and CST financial records, the agentsreviewed the churches‘ employment tax compliance, looking at boththe reporting of staff compensation and commissions to thirdparties. In no case did the agents find anything requiringadjustment, much less anything reflecting on these churches‘qualification for tax exemption under section 501(c)(3).

E’ Where the individual who performed FSM services is onstaff at another church or church organization, the commissionfor those services is paid not to the individual actuallyrendering such services but to his or her employing church and isused for welfare of all of that church's staff.

5’ The event which triggers payment of an FSM commission isthe receipt of religious services by the individual, not merelythe payment of money. Thus, FSMs are motivated to follow throughto see that individuals making advance donations actually receivereligious services. This also directly contradicts the assertionoften made by the Service that the commission system evidences apurpose to make money for its own sake, without regard to whetherreligious services ever are taken.

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CSI PPOL‘ HO” IQ 1°Q'~T IZQSI . ' . 9 V ' Q. e. '.. I5 I '\‘ - - —- Q‘ i _ an "0-5

If you have any other questions about commissions please letus know.

QQESIION E

VICES O PROL EESCEIETIOE OE LEE SEE E QQ I EEEEEE.OIEIS_IECLEQES_ALL_AEDIIIEQi_IEA1!1E§z_EQ1I_AI1lEAL

covnsgs, PUBLICAIION8, igg BUBIEESS cgwnszs,wnggggg ggggiig 03 ggiicioug igciupg ggiggliars, A Qzsggigriog og mg; 3 ggg or gnigigo, igpA_EESQEIIIIQE_QI_IEE_ENEII1§__IEE!!§E_!ElCE_EAQESEE!ICS_IS_Q£ZEESSi

During the meeting on March 7 you stated that you did notwish to receive additional copies of information about courses,publications and prices that already had been provided to theService. Nevertheless, CSI has submitted substantial informationin the past that satisfied Service representatives as to thenoncommercial character of Scientology operations. In CSI'sfirst exemption determination proceeding it filed a separatesubmission (the "Commercialism Submission") specificallyaddressing, inter glig, donation rate and pricing policies forScientology religious services and materials; the material factsand legal principles regarding the issue of "commercialism" havenot changed since then. Thus, we are including as Exhibit I-11another copy of that submission.

O u<<J

@3-V-3

The commercialism Submission shows that the policy forsetting contribution rates and prices is very simple -— allprices and fixed contribution rates are set to enable churches tocontinue to provide their religious services, Scriptures andother materials of the religion to more and more members of thegeneral public. In short, Scientology, like all other religions,simply seeks to raise sufficient funding to support an evergrowing ministry and program of religious and community services.Like the Mormon Church, the Church of Scientology has decidedthat a mandatory system of fixed contributions is the mostappropriate way to fund its program.

This policy manifests in the basic criteria that the fixedprice or contribution amount be affordable to a broad segment ofthe general public and that it produce a sufficient return toenable the church to continue to carry out its religious programand minister to an ever-growing congregation. These amounts arenot unreasonable. CSI's Commercialism Submission includedaffidavits from prominent experts that rates for religiousmaterials and Scriptures were reasonable and in many casessubstantially less than what could be justified were the purposeto maximize profits, and that the rates for royalties payable to

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051 PROD ~0u :2 19. R 22980 Q; in '1

Mr. Hubbard during his lifetime for sales of his books and otherproperties were reasonable.Q’

It appears from statements at the March 7 meeting that theService's present concerns involve the World Institute ofScientology Enterprises ("WISE") and the Service's erroneousbelief that churches of Scientology provide nonreligious businesscourses. Both concerns appear to reflect a fundamentalmisconception of the nature and applicability of Scientologyreligious beliefs and practices.

Scientology is not something that its adherents practice foran hour or two one day a week. Rather, it is a body of knowledgeand system of beliefs which translate into a way of life forevery moment of a human's experience. Scientologists put intopractice their beliefs in everything they do in their lives.Indeed Scientologists by Scriptural definition, are individualswho apply principles of Scientology to better themselves and tobetter conditions for others.

The Church ministers religious services to its parishionersto raise their spiritual awareness and abilities and advance themto higher states of being. These services do not, however,address the individual in isolation from the world in which helives. In the Scientology religion, man is perceived as aspiritual being, existing and interacting across eight dynamics:self, family and sex, his group, mankind, the universe of plantsand animals, the physical universe, the spiritual universe andthe Supreme Being. An individual's existence and survival withrespect to the groups he is part of (including his or her job orbusiness) constitutes the individual's third dynamic.

A substantial body of Scriptural materials within theScientology faith establishes detailed principles and techniquesfor interacting with and being a member or leader of a group.

Q’ No expert approached felt qualified to give an opinion onthe reasonableness of the fixed contribution amounts set forreligious services. This is not surprising, since parishionertithing is one of those purely ecclesiastical matters that theestablishment clause insulates from governmental interference;indeed, the suggestion that donation levels for Scientologyservices ere set to "maximize profits" implicitly questions thereligious character of the services. You might note, however,that CSI's Commercialism Submission (at pages G61 to G64) showedthat the fixed amounts set for religious services from 1980 to1987 decreased by an average of 66 percent (adjusted forinflation) rather than substantially increased, as the Servicehad contended.

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_"‘

0 f_,| U1 U csz PROD new 22 19. 12299 ’

Q u o

eI I P ' ' 0 0 0

I I I

' I0 1 0 .

I, 0 0 0 0

one person.

Many staff members of Scientology organizations attendcourses on this administrative technology to learn theseprinciples so they can apply them in carrying out their duties.Although the material in these courses was written by Mr. Hubbardspecifically for the management of churches, the principles itembodies are equally applicable to any third dynamic (group)activity.

For example, the Ogggnizgtigg Egecutive Couggg, which isoffered at some churches, consists of eight separate courses:one for each division of the Scientology organizing board, plusone course covering the basics of serving at any position withina Scientology organization. (CSI described the Scientologyorganizing board in its July 3, 1986 protest at page B24 and hassupplied the Service with examples of organizing boards in priorproceedings. Examples were included in the booklet 1gg;_§yigg_;gflgggggmggg provided as Exhibit B5 of the July 3, 1986 protest,and again during the on-site review proceedings and more recentlyin the QgmQgg_gn;nn§1§_§Qgglg; which was provided with CSI's1023 application filed in March 1990.) The QggggigggignExggugivg Cguggg includes principles of administration,communication, production, personnel, ethics and justice,finance, staff training, delivery of services, personnelenhancement and correction, dissemination, executive actions andduties, etc, which, if applied, would help each of us achieveethical and orderly administration in all of our groupactivities It is only natural that an individual would like toattend courses on such topics and use the knowledge andprinciples they learn in their own endeavors The use ofScientology principles in this manner directly advances CSI'sexempt religious purpose of improving life in a troubled world

This is not an unusual practice —— many, many churchesaround the country provide similar services to theirparishioners The First Presbyterian Church of Evanston forexample, offers a conference for a fee for "Leaders in Training,"to help "improve their skills in decision-making, teamwork andmotivational leadership " Exhibit I-12 The United MethodistChurch helps sponsor workshops for teachers on "SkillDevelopment," "Setting Goals, Recruiting, Evaluating" and"Administrative Evaluation, Use of Computers " Exhibit I-13The Oregon Conference of Seventh-Day Adventists offers a "'LoveTakes Time‘ Marriage Retreat" to help nurture its parishioners‘

0 0 (4 01

These principles largely derive from Mr Hubbard's research andcodification of policies and techniques for the administrationand managing of churches The material is applicable however,to any group, large or small, including one's job, club, nationcircle of friends and any other activity that involves more than

25

A :51 PROD ~09 22 1,, 2299

love lives. Exhibit I-14. And the Valley Presbyterian Church inScottsdale has a course on "Family Communications," covering suchtopics as "How to Get Your Needs Met Through Communication,""Techniques for Better Communication" and "Solving IndividualProblems." Exhibit I-15.

WISE is a nonprofit religious corporation that performsseveral functions important to the furtherance of the Scientologyreligion.m’ WISE is a religious fellowship association ofScientology businessmen and businesswomen. WISE serves to assurethat its members do not interfere with activities of their localchurches by encouraging them not to have any business presence onchurch premises. It instills a more ethical influence to theresolution of business disputes by providing members chaplain andarbitration services in accordance with Scientology religiousprinciples. It insulates churches from the business activitiesof Scientologist-owned businesses by serving as the responsibleentity for licensing marks related to the religion to certainbusinesses (such as manufacturers of Scientology religiousjewelry), and by licensing marks associated with L. Ron Hubbard'sname to members who use these marks in their businesses,primarily in consulting with other businesses in the area ofbusiness management, administration and finance.

WISE does not offer courses on the administrative principlesand techniques developed by Mr. Hubbard, though it has in thepast. WISE is in the process of transferring the educationalactivities it previously conducted to a newly-organized nonprofitcorporation, Hubbard College of Administration, which will offercourses, workshops and seminars on Mr. Hubbard's organizationalmanagement technology to the general public. (We understand thatthe College will be applying for tax exemption under section501(c)(3) in the near future.) As a result of this transfer,WISE‘s functions now are exclusively religious rather than bothreligious and educational.

15 Although organized as a nonprofit corporation, WISE hasfiled a corporate tax return on Form 1120 every year it hasexisted.

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~ 1' "tsr PROD new :2 1993 229 -:0 Ln 1.0

QQE§I1QH_2

AH_I32LAEAIIQH_QI_IHE_IIHAEQIAL_B§2QBI1!§_§1§IIH_HfllD19 giiggaig gonmnoi igp PREZEE1 ggivigg gggggig 03IHEBEEEEI_AI_ABI_QBQAEIZA1IQ!AL_LE!£Li__1E1§_§HQHLDiggigpg is EQZLLELIION 03 gov ggg gggvigg gogip, wig;

. A§_LIIIL3_IEIBE§IQ!_A2_2Q§§IBL£x_BLAE1H£_IHl_AQ£QEEI§- " =u'+ 1. o ~nns .;-- "1.'m -a.:- 1

2HHL1Q_ZQLIQXI_AHD_IEI3QBIIX_QI_EEQQRQ§_AB£_ADQRE§§lQs

During the March 7 meeting, you agreed to defer thisquestion pending your review of the responses to the otherquestions. Nevertheless, in light of the Service's often-expressed concerns about the integrity of Scientologyorganizations‘ financial records, we attach as Exhibit I-16 astatement from Grant Thornton which describes the extent to whichthey have become familiar with the recordkeeping systems requiredby Scientology administrative policy and the extent to which theyhave used those records in preparing tax and financial statementsfor specific U.S. Scientology organizations (including CSI). Italso should be emphasized that overseas offices of Grant Thorntonprepare the tax returns and financial statements required by law 'of a number of non-U.S. Scientology organizations.fl’ GrantThornton personnel have expressed to the Service on a number ofoccasions their high level of confidence in the accuracy andverifiability of the financial records of Scientologyorganizations.

Q!§§I1Q!_l2

II_EEEI!EEII§_I!_IHE_1IIEII1NE_EHEE1Hx_A&HL2AEIIQlLAELIQEl§I1QH_ix_ILEA§I_IBQZ1QE_1QEB_fll§I_l§IIHAIlLA£_IQAQI!A_DQLLAB_AHQ!!I§i

Attached as Exhibit I-17 is a supplement to Exhibit I-9converted to dollar amounts.

Q’ In addition, other accounting firms, including Deloitte,Haskins I Sells, Mazars, and Coopers & Lybrand (Dijker Van Dien),prepare annual financial statements and/or tax returns of manyother nenPU.S. Scientology entities, as required by the laws ofthe various countries.

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CSI PROD HOU Z2 1993 ' E298 9an ;»