HUBBARD COMMUNICATIONS OFFICE Saint Hill Manor, East Grinstead, SussexHCO POLICY LETTER OF 25 JUNE 1967 All Executives of AlIOrgs All Accountants LRH Finance Comm OT Central Committee Treasurer WW SCIENTOLOGY ORGS TAX AND BALANCE SHEETS (This policy letter refers to business practices in setting forth the handling of balance sheets. Churches of Scientology have been officially recognized as religious organizations in every country in which they have been incorporated. Churches are generally not required to produce or provide balance sheets to tax agencies. Nevertheless, the United States Internal Revenue Service and some other suppressive tax agencies have from time to time required these of Scientology orgs as part of their policy of harrassment. As there is no such thing as a church balance sheet or a religious organization balance sheet, it is necessary to understand and apply certain standard methods of business accounting in order to deal with the taxman's harrassment. Indeed, the issue is written in business terms as it is manifestly impossible to write about tax and balance sheets in any other context.-CSI) There is a confusion on the subject of tax and balance sheets as they involve or concern monies owed on balance sheets. Extraordinary solutions are being advanced and the matter should be reviewed. There are certain principles involved here which vitally affect Scientology companies as companies and indeed are basic in any business. 1. If you acquire the profit of an asset without paying for it, all monies received become a false profit and taxable. 2. If you invoice money as your own that is in fact owed to someone else, you wind up with a false profit and get taxed for it. 3. There are certain principles of business having to do with income and debts which cannot be thrown aside even by a tax department. 4. The moment you vary from the exact truth of any transaction you involve yourself in potential confusion that requires extraordinary solutions. 5. When you find yourself being asked for extraordinary solutions you have departed from the truth of the transaction. As tax departments have never to my knowledge accepted without question the year's return or balance sheet of any corporation, efforts to get such departments to accept a return or balance sheet by putting in wild solutions avail nothing. The tax people aren't going to accept anything at all anyway ever without challenge. If you are challenged, you better have the REAL facts right there. This doesn't mean one should tell them all the truth in a geyser and gush. 402 The real stable datum in handling tax people is NEVER VOLUNTEER ANY INFORMATION. It does mean one must not tell them or give them false data. It only means that when you give them data you can't back up or report profit you didn't make, you will get into severe trouble. The basic errors of Scientology corporations in accounting and tax matters lie in 1 to 5 above. Under 1, all existing companies have acquired assets from me without paying for them and therefore show a false profit. They sell books they do not own the copyrights for, acquire technology they never paid for and, in the case of Saint Hill, acquired a business worth upwards of two million pounds and an estate worth £80,000 without ever showing any debt. So the profits then look very large in any Scientology company. And this involves them with tax. Because the government accuses them of paying me (which they don't), they think it must be a crime to pay me anything and so are pushed into a profit situation because they have never paid for their main assets. Of course, a tax department wants to see them with a big profit which can be taxed and so blocks the truthful fact that the companies owe me money. Recently a law in England, passed by the boilermakers playing politician, threatened to call any company a close company which owed any money to an individual and put close company tax at 67%. Well, the loophole is that if they don't owe it to an individual they'd pay tax anyway at high percent. And if they did owe it, they'd have no profit. And 67% of nothing is exactly nothing. So using the close company law to say I can't be owed anything is just bad thinking. And it leaves SH with £2 million of "profit" that CAN be taxed which it doesn't really own as profit at all. Under 2 above, whenever you invoice money as your own income that is owed to somebody else, you wind up with a false profit on which you will then have to pay tax you don't owe. Let us take an Advanced Clinical Course I have given. I paid my fare, often the bulk of expenses and took no fee. The ACC was invoiced in as org income. Yet it wasn't. It was my income. Yet the org not only invoiced it in, it didn't even note on its balance sheets it owed it to me and so wound up with a taxable profit. Take the book Dianetics: The Modern Science of Mental Health as a property. I bought it back from the publishers in New York for $15,000 of my cash. I turned it over to the Distribution Center, Inc. in DC which then sold tons of copies of it, invoiced each one as its own income and never paid me any royalty at all. Further, it never noted on its balance sheets it owed me for it and soon had US tax bills against it for its "profit." In addition to all that, DC, London and notably Saint Hill have taken over bank accounts of mine, have invoiced royalties owed to me only for movies and books, even my veteran's checks, and yet never noted in any balance sheet or return that it owed it. So it wound up with a taxable sum. 403 Of course the government tax offices will say not to put down your debts as then they have a profit to tax!