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Scientologists settled with IRS for $12.5 million

December 31, 1997 GMT

LOS ANGELES (AP) _ The Church of Scientology paid the Internal Revenue Service $12.5 million in a 1993 settlement that established its tax-exempt status, a church official said Tuesday.

Mark Rathbun, director of the church’s Religious Technology Center, confirmed some previously undisclosed details of the 1993 settlement reported in Tuesday’s edition of The Wall Street Journal.

``Bottom line is, the document is a peace treaty. The war is over,″ Rathbun said.

The settlement, known as a closure agreement, ended a struggle that began in 1967, when the IRS argued that the main Scientology church should lose its tax-exempt status because it was a for-profit business that enriched church officials.

The church replied with more than 2,000 lawsuits against the IRS. Rathbun said ``rogue agents″ made ``outrageous claims″ against the church and it had to fight back.

IRS spokesman Frank Keith said the decision to grant tax-exempt status was ``based upon voluminous information provided by the church to the IRS regarding its financial and other operations.″

Under the agreement, the Church of Scientology agreed to drop its lawsuits and pay $12.5 million to settle any tax assessments prior to 1993.

However, further payments are possible.

The church also agreed to set up a tax-compliance committee to monitor its adherence to the settlement and to the tax laws. Under the agreement, the IRS can levy as much as $50 million in penalties on the church if it finds that officials were enriching themselves with money intended for nonprofit activities.

The IRS agreed to drop any outstanding audits of Scientology organizations and declared the church tax-exempt along with several related organizations, including a trust that oversees the church’s 440-foot cruise ship, Freewinds.

Also, church members were permitted to deduct from their personal income taxes the fees they pay for ``auditing,″ in which a device that the church claims can read mental states is used in a process of purging negative thoughts.

The Los Angeles-based church, which has an estimated $300 million in assets, was founded in 1954 by late science fiction writer L. Ron Hubbard.