SAN FRANCISCO, JULY 28 -- A federal appeals court today upheld the revocation of the Church of Scientology of California's tax- exempt status, saying that the church used a sham corporation and other methods to funnel money to founder L. Ron Hubbard.
The 9th U.S. Circuit Court of Appeals also upheld more than $1.4 million in federal taxes and penalties against the Los Angeles-based church for the years 1970-72.
The court said the Internal Revenue Service and the U.S. Tax Court had properly revoked the church's tax-exempt status on the grounds that a portion of its earnings went to Hubbard and his family.
The Rev. Heber Jentzsch, president of the Church of Scientology International, said the court failed to recognize that "Mr. Hubbard turned his money over to the church" after his death in January 1986.
Jentzsch also said he considered it "a tremendous victory" that the court had found that the church was "organized for a bona fide religious purpose." The court said this finding was uncontested by the IRS but was not enough to maintain the church's tax-exempt status in light of its operating methods.
Hubbard resigned as executive head of Scientology churches in 1966 but continued to hold significant control over operations, the court said.
The court said salaries paid to Hubbard and his wife, Mary Sue, totaling $185,000 in 1970-72, were not excessive and did not disqualify the church from tax-exempt status.
Other types of payments "cross the line between reasonable and excessive," the court said, including the "sham corporation" Overseas Transport Corp., which funneled millions of dollars to Hubbard.