Hucksters and tax-collectors. Perhaps the two most likely categories of people to be sent out of a Wild West town on a rail, slathered in tar and flecked with feathers. Americans do not like to be taxed by a Fed and they do not like to be tricked by a fraud, but when the taxman goes after the trickster, with whom do the American people side? Who would Americans root for in such a fight? That is the backdrop against which one of the most epic and little-known battles in American life is set—the Church of Scientology’s self-described “War on the IRS” to maintain its 501(c)(3) tax-exemption as a legitimate religious organization. 

That nobody likes the IRS is a truism of the American “don’t tread on me” anti-governmental ethos. Like George Harrison, most Americans do not feel particularly warm and fuzzy about taxmen. Most Americans, across all political persuasions, distrust the Internal Revenue Service as an institution: it is seen as corrupt, predatory, and sclerotically bureaucratic, associated far more with hunting down your paychecks than with bankrolling social welfare programs (many Americans believe that the majority of IRS agents carry guns; less than 3% do) . Elon Musk and DOGE are facing far less political backlash in their attempt to slash and burn the agency in search of “waste, fraud, and abuse” (and extra zeroes) than they have with international aid and social welfare organizations which provide rights and services that Americans do in fact enjoy. 

But while the IRS agent remains a creature of special scorn, learning about the IRS’ epic defeat at the hands of Scientology may lead many Americans to see the organization not as some phantom organ of all-powerful governmental overreach but instead as something closer to the truth: a weak, understaffed, and logistically outmatched organization—one that is so inept in the face of sustained private lobbying and regulatory capture that we weaken it further at our own peril. After all, when the IRS is weak, hucksters and criminals—and, as the Scientology case makes clear—brainwashers are strong. 

Foundation and Early Battles for 501(c)(3)

There is no getting around the fact that L. Ron Hubbard, the prolific author of pulp science-fiction and founder of the Church of Scientology, once mused that inventing a religion would be a great way to earn a million bucks. Whatever one thinks of Jesus the Salesman and the inherent profit engine built into all proselytizing religions, most people—outside the Church, that is—see Scientology as a particularly illegitimate religion. That instinct is right: Scientology is an elaborate cult and a sophisticated scam. But Hubbard was not a pure crook; rejected by the medical community for his pseudo-psychiatric book Dianetics, he became doubly committed to proving that his methodology could produce spiritual and psychological benefits for adherents. Hubbard conceived of Scientology for that end: he thought that genuine psychiatric interventions could be achieved through the religious apparatus of Scientology, including its infamously intense auditing sessions focused on resurfacing past trauma through rapid-fire questioning. The enthusiasm of early Scientology members for these intense procedures lent an outward appearance of zealous, but deeply-held, belief to the organization, however eccentric it was. L. Ron Hubbard incorporated a handful of nonprofit organizations as organs of the Church in 1953 and 1954, and lobbied extensively to obtain 501(c)(3) tax-exemption for them, in an effort to both legitimize the Church and to personally escape the strictures of taxation. For Hubbard, 501(c)(3) was a holy grail, the kind of prized intergalactic resource he might have written about in one of his hundreds of thousands of pulpy science-fiction stories.

In 1957, Hubbard secured that holy grail: the IRS granted tax-exemption status to the main arm of the church (this is a slight simplification of a complex history. I’ve included the vague modifiers some and several to refer to the complex web of organizations which make up The Church of Scientology. At times when some chapters have maintained tax exemption, others have lost it—for example, the D.C. Church lost its exemption in 1958, even as the Church writ large achieved a major recognition victory in 1957).

The advantages of 501(c)(3) status are obvious; the criteria for who gets to enjoy those advantages less so. It’s worth diving deeply into the letter of the law in the tax code to understand why (in the 1950s and how it has changed since):

Section 501(c)(3) of the Internal Revenue Code of 1954 stipulated that the following kinds of organizations could receive tax-exemption status (italics mine):

“Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation, and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of any candidate for public office.”

The main arm of the Church in 1957 seemed to fall under that umbrella fairly uncontroversially: it was clearly an organization operated for overwhelmingly, if not exclusively, religious purposes and had not yet obviously developed a stream of “unrelated business income” (taxable under 501(b)). The Church was not politically active on behalf of specific candidates and causes and, at the time, Scientology remained relatively small and unknown—it kept to itself, perhaps perplexing outside observers in occasional media reports, but not yet alarming the American public with stories of institutionalized brainwashing and physical abuse. Based on tax audits (that is, not Scientology ones) of Hubbard himself, no revenue from the Church seemed to be “inuring” inordinately for his benefit. But that would soon change.

The decade after 1957 featured some very bad financial behavior on the part of the increasingly-avaricious Hubbard, which led the Church to be stripped of its 501(c)(3) status by the IRS in 1967 (a 1972 IRS audit would reveal that the Church owed “$1,150,458.87 in delinquent taxes and an additional $287,614.71 in late filing penalties”).

In response to that revocation, Hubbard formed the Sea Organization (SeaOrg), bringing a dedicated cadre of Scientologists aboard a company-owned fleet of ocean-liners, which he captained around the world in pursuit of tax-friendly harbors (this maritime period of Scientology’s history is explored during Paul Thomas Anderson’s film The Master, a fictional, shades-of-Hubbard account of a “movement” leader and his posse on the high seas). The Church struggled to expand and attract new members during this wilderness period. Hubbard and his eager Myrmidons waged war against the IRS to reverse the damaging revocation: the Church routinely refused to pay its taxes and members raided and bugged IRS officers in an effort to eliminate incriminating documents.

These tactics were conceptualized under the “Fair Game” policy, outlined in detail by Hubbard throughout the 1960s and 1970s (the Church tried to distance itself from the policy, but numerous insider accounts reveal that it remains virtual scripture and is followed obediently). “Fair Game” is exactly what it sounds like: the basic tenet of the policy is as follows:

• Any enemy of the Church may be “deprived of property or injured by any means by any Scientologist without any discipline of the Scientologist. [They] [m]ay be tricked, sued or lied to or destroyed.”

And its corollary (suggested by the “without any discipline” clause above):

• No Scientologist could be punished “for any action taken against a suppressive person or Group during the period that person or group is ‘fair game’.”

Here’s what counted as “Fair Game” in the war against the IRS

• Founding a National Coalition of IRS Whistleblowers
• Burgling IRS and DOJ offices and stealing government documents 
• Paid private investigators to follow and spy on IRS agents
• Bugged IRS offices
• Formed a “fake news” bureau to attack the IRS in the press

Needless to say, no such policy was in place at the Internal Revenue Service, where rule-abiding accountants remained bound by administrative law and congressional oversight. This imbalance in tactics dictated the outcome of the “Holy War,” which the Church ultimately won against the IRS simply because it was more committed to the fight than the IRS was statutorily equipped to be. The Church was simply able to lawyer up better than the federal government in order to prevent the enforcement of federal law by the books (which, by the way, should not be normal!). The IRS, under pressure and exhausted, shrank from the fight. Hubbard’s successor, the tyrannical David Miscavige, and his minions won not because they proved the case that the Church abided by the 501(c)(3) criteria to the last letter and comma, but because they had the power, patience, and audacity to single-handedly capture a regulatory agency, just like scores of even more well-endowed corporations were doing in the same era (and are today). As the Church grew under his stewardship, Miscavige became even more monomaniacally fixated on regaining the 501(c)(3) status (the holy grail became the white whale, if that’s an upgrade). It was the single ambition towards which Miscavige deployed the now industrial-scale financial and legal resources of the Church, which has not had its 501(c)(3) status revoked ever since.

The Church of Scientology has developed an aura of untouchability from the success of its jihad against the IRS, which it retains to this day despite a litany of scandals and dwindling recruitment. Even as the crimes of Scientology—up to and arguably including large-scale brainwashing and slave labor—have become well-documented and understood by the public (and, in a parallel process, as its violations of the tax code have become more brazen) the IRS stood a snowball’s chance in hell of bringing the rogue church to heel even before DOGE. Of course, the prospect seems even more laughable under Elon Musk’s flagrantly anti-bureaucratic regime, which is hellbent on making the IRS an applesauce level of toothless. Crucially, there also seems to be little center-left enthusiasm for protecting and reforming the agency the right way. So as Scientology has experienced a Golden Age of power and influence in the 21st century, the IRS has declined into a state of impotence and irrelevance, compounded by public distrust and inefficiency. What happened?

The decline of the IRS’ enforcement power is instructive for a larger understanding of how rule-of-law can be corrupted. While I mentioned that early on, the Church of Scientology might have had a legitimate case for 501(c)(3) status, no serious person would argue that now. But the moral of the story here is that 99% of law in America is perspiration, not inspiration. It does not matter if someone is obviously violating the law if it is impossible for that law to be effectively enforced.

For an excellent and extensive account of why the tax-exemption case against Scientology is open-and-shut, I recommend taking a look at a Texas Tech Law Review article by Taylor C. Holley from a few years ago, titled “Auditing Scientology: Reexamining the Church’s 501(c)(3) Tax Exemption Eligibility,” which outlines the case very clearly. Here’s a brief summary. Holley reminds us that religious organizations can receive 501(c)3 tax-exemption status provided that they serve the “public benefit,” that they not intervene on behalf of specific political candidates or causes, and that the majority of their commercial activity be directed to religious purposes, without “substantial” inurement of private benefit to individual officeholders and shareholders. Scientology clearly violates that last requirement: David Miscavige, who has not worked anywhere other than the Church since age 11, reportedly owns multiple sports cars, mansions, and luxury watches. Holley makes a clever argument that Scientology has also violated common-law requirements of organizations to comply with “fundamental public policy,” in addition to the specifics of statutes. The Supreme Court ruled in Bob Jones University vs. the United States (1983) that tax exemptions can be removed from organizations engaging in practices that violated established public policy (that case revolved around the nonprofit Christian university’s refusal to admit students in interracial relationships, something which ran afoul of broad federal anti-discrimination and anti-segregation policy since Brown in 1954). The Church of Scientology is guilty of violating established public policy including the human rights regime, labor laws, and child welfare. Not only has the Church violated tax law, it has violated a whole host of other laws—a 501(c)(3) accredited religious organization must abide by such laws to prove that it indeed serves the public good. The organization must follow these criteria operationally, that is, in the continual functioning of the organization, not just the day it files its tax-exemption request. This means that 501(c)(3) status is a perpetually earned privilege which can theoretically be revoked at any time—what the Galactic Overlord Xenu giveth, the Galactic Overlord Xenu can also taketh away.

But, unfortunately, the IRS is far less powerful than the Galactic Overlord Xenu. According to many of its employees and outside experts, the agency has long struggled to enforce tax law because of out-dated technological tools and limited staffing. And as a bipartisan group of former IRS commissioners pointed out in a February op-ed in the New York Times, “Every year, the government receives much less in taxes than it is owed. Closing that gap, which stands at roughly $700 billion annually, would almost certainly require maintaining the IRS.’s collection capacity. Depleting it is tantamount to a chief executive saying something like: “We sold a lot of goods and services this year, but let’s limit our ability to collect what we’re owed.” Not only is the IRS not an over-zealous hunter of unearned receipts, but, despite its best efforts, it can barely collect the relatively small amounts that it its owed and legally mandated to collect—the IRS falls more and more behind on doing its job every year, feeding into our ever-growing national debt. The commissioners also remark that slashing 6,700 IRS employees, “many if not most of whom are directly involved in collecting unpaid taxes,” in the middle of tax season is not exactly a great first step toward reforming the organization’s ability to do its job (the commissioners neatly observe that CEOs would be unlikely to attack waste in their own organizations by slashing their revenue-collecting “accounts receivable” divisions). Instead of gutting already weak agencies like the IRS, we should be equipping them to be more effective and efficient forces on behalf of public good. The IRS should be empowered with more lawyers and resources in an anti-corruption division to take on bad actors, whether they be tax evaders and crypto tycoons or notorious cults masquerading as benevolent religious organizations. The real source of inefficiencies in the IRS, as in so many other government institutions is the paralysis-inducing parasitism of corporate capture: what DOGE should really be doing is identifying the institutions which have captured regulatory agencies and overpowered the lawgivers. Let’s be very clear (to use a Scientology term)—agencies like the IRS should be on the side of the public interest, and and can and should help make our country safer, fairer, and more free. It will be difficult for current civil and criminal cases (even RICO ones) against Scientology to succeed in the face of the Church’s skilled lawyer-pool and sophisticated institutional protection of secrets. The only way to defeat the Church is to aim a silver bullet at its wallet: revocation of its tax-exemption status would be that silver bullet, and the IRS is the only institution theoretically equipped to fire it. The IRS is first among the list of agencies which need sharper tools, brighter minds, and more streamlined agendas for laying down the law and pursuing the public good. Let’s start by empowering the IRS to take on the Church of Scientology. In America, there should be no indoctrination without taxation.

By Zachary Partnoy