page_title: Tax status of Scientology in the United States
section_title: Initial tax exemption and revocation
hierarchical_section_title: Tax status of Scientology in the United States / Initial tax exemption and revocation
caption_attribution_description: English: The Holton Condominium, a Georgian Revival style building located at 2125 S Street, NW in the Kalorama neighborhood of Washington, D.C. From 1906 to 1963, the building housed the Holton-Arms School, now located in Bethesda, Maryland. From 1964 to 1995, the building housed the Founding Church of Scientology (raided by the FBI on July 8, 1977, during the investigation of Operation Snow White). In 2003, the building was renovated and now serves as an eight-unit condominium. It is a contributing property to the Sheridan-Kalorama Historic District.
context_page_description: The tax status of the Church of Scientology in the United States has been the subject of decades of controversy and litigation. Although the Church of Scientology was initially partially exempted by the Internal Revenue Service from paying federal income tax, its two principal entities in the United States lost this exemption in 1957 and 1968. This action was taken because of concerns that church funds were being used for the private gain of its founder L. Ron Hubbard or due to an international psychiatric conspiracy against Scientology.
  In the course of a 37-year dispute with the IRS, the church was reported to have used or planned to employ blackmail, burglary, criminal conspiracy, eavesdropping, espionage, falsification of records, fraud, front groups, harassment, money smuggling, obstruction of audits, political and media campaigns, tax evasion, theft, investigations of individual IRS officials and the instigation of more than 2,500 lawsuits in its efforts to get its tax exemption reinstated. A number of the church's most senior officials, including Hubbard's wife, were eventually jailed for crimes against the United States government related to the anti-IRS campaign.
context_section_description: The Internal Revenue Service awarded tax exemption to the California and Washington, D.C. churches in 1956 and 1957 respectively. In 1958, however, the Washington church lost its tax-exempt status on the grounds that its tenets and practices did not constitute an exclusively religious or educational activity. A key factor in the revocation of its exemption was the issue of private inurement – the use of tax-exempt monies to benefit a non-tax-exempt individual or entity. The Court of Claims found that Hubbard and his family had profited from the Washington Church of Scientology. He had been given $108,000 over four years by the church, with the free use of a car and a private residence. His family had withdrawn thousands of dollars from the church's funds, and his wife Mary Sue had earned over $10,000 from renting property to it. Hubbard had also been tithed ten percent of the church's gross income. The church appealed to the US Court of Claims, but lost. The court ruled that Scientology was a "business, a profit-making organization run by Hubbard for his personal enrichment."
  In 1959, Hubbard moved to England where he purchased Saint Hill Manor in East Sussex to serve as a family home and world headquarters of Scientology. Over the following seven years, he tried repeatedly to establish a tax-exempt corporate vehicle in the United Kingdom by establishing multiple limited companies under the aegis of various Scientology entities and applying for non-profit status. However, the British Inland Revenue consistently refused the applications.
  The Church of Scientology of California (CSC), a fairly minor part of the Scientology corporate structure at the time, had managed to retain its tax exemption. In contrast to the Washington "Founding Church", an IRS audit concluded in 1964 that the CSC was operating for legitimate tax-exempt purposes. The IRS reconfirmed CSC's tax-exempt status. In March 1966, Hubbard took advantage of this action by transferring the HASI's assets in the United States, the Commonwealth and South Africa to the CSC. By transferring Scientology's overseas operations to the control of the CSC, he was able to take advantage of reciprocal tax exemption agreements to ensure that Scientology could operate internationally under the tax-exempt mantle of the CSC.
  The "Founding Church" in Washington, D.C. had an ongoing lawsuit against the United States Government for a refund of the federal income taxes that the church had to pay following the loss of its tax exemption in 1957. The Department of Justice asked the IRS to review the tax-exempt status of the CSC and other Scientology entities, believing that the CSC's exemption was inconsistent with the earlier revocation of the Founding Church's exemption. In July 1966, the IRS sent the CSC a letter stating that the IRS proposed to revoke the tax exemption on the grounds that the CSC's income was inuring to the benefit of Scientology practitioners, that CSC was engaged in commercial activities, and that CSC was serving the private interests of L. Ron Hubbard. On July 18, 1967, the IRS officially revoked the CSC's tax exemption with retroactive effect. The Founding Church's case against the government went before the US Court of Claims in July 1969, where it argued that it should be exempted from federal income tax as it was constituted "exclusively for religious purposes." Its argument was rejected, setting the scene for what Scientology's leadership would later characterize as a "war" with the IRS.
  The IRS revocation of tax exemption was, however, not total. While the California and Washington Scientology organizations lost their tax exemption over the issue of inurement and their business practices, fourteen other separately incorporated organizations in the United States gained or retained exemption despite similar concerns about their activities. The agency's approach to the other organizations was inconsistent. In a 1972 memorandum on the Church of Scientology of Florida (CSF), the IRS recommended that the CSF exemption should be revoked because it had not establ
caption: The Founding Church of Scientology in Washington, DC
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