June 29, 1990

THE BATTLE WITH THE I.R.S.

Neither Side Blinks in a Lengthy Feud

By ROBERT W. WELKOS and JOEL SAPPELL, Times Staff Writers

Among its many adversaries, the Church of Scientology's longest-running feud has been with the Internal Revenue Service. So far, neither combatant has blinked.

Over the past three decades, the IRS has revoked the tax-exempt status of various Scientology organizations, accusing them of operating in a commercial manner and of financially benefiting private individuals. From the late 1960s through mid-1970s, IRS agents classified Scientology as a "tax resister" and "subversive," a characterization later deemed improper by a judge.

In 1984, the IRS's Los Angeles office launched a far-ranging criminal investigation into allegations by high-level Scientology defectors that the movement's founder, L. Ron Hubbard, had skimmed millions of dollars from the church.

The probe was dropped after Hubbard's death in 1986. A Justice Department source told The Times that, with the primary target gone, the point was moot. But church executives say the IRS had no case because the allegations were untrue.

Scientology, for its part, has brought numerous lawsuits against the IRS, accusing the agency of everything from harassment to illegally withholding public records. In the 1970s, overzealous Scientologists went so far as to bug an IRS office in Washington, D.C.--a crime that led to their imprisonment.

More recently, through a group called the National Coalition of IRS Whistleblowers, Scientologists have embarrassed the very branch within the agency that initiated the criminal investigation of Hubbard.

The coalition, founded in the mid-1980s by the Church of Scientology's Freedom magazine, helped fuel a 1989 congressional inquiry into alleged wrongdoing by the former chief of the IRS's Criminal Investigations Division in Los Angeles and other agency officials.

Based on public records and leaked IRS memos, the coalition disclosed that the former Los Angeles supervisor and several colleagues bought property from an El Monte firm being audited by the IRS. Soon after, the audit was dropped with a finding that the firm owed no money. The supervisor has denied acting improperly.

The whistle-blowers coalition, whose members also include past and present IRS employees, provided the information to a House subcommittee, which was investigating the IRS at the time. The allegations received nationwide exposure during later hearings by the subcommittee, prompting a promise from IRS Commissioner Fred T. Goldberg Jr.to toughen ethical standards in the agency.

The coalition's spokeswoman, Scientologist Lisa Lashaway, also appeared on NBC's "Today" show with a subcommittee member, where the two criticized the conduct of the IRS unit.

Although Scientologists do much of the legwork for the coalition, its president and chief point man is retired IRS agent Paul DesFosses, a non-Scientologist who left the IRS in 1984 after a stormy relationship with the agency.

"They've given us a lot of support," DesFosses said of the Scientologists in a recent interview. "That's understandable because people who are under attack by the IRS are suddenly very concerned with IRS abuse."

Despite his close working relationship with Scientology, DesFosses said church members never told him that Hubbard was under criminal investigation by the IRS when they offered to organize and assist his whistle-blowers group.

"No, I wasn't aware of it," DesFosses said when informed by The Times. "I would be very surprised to learn that."