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DOCUMENT TITLE: Dispatches, Henning Heldt to "L. Ron Hubbard"
SUBJECT: Evidence of Norton S. Karno being involved at highest levels in seniormost Scientology organizations: Church of Scientology of California (CSC) and the Guardian Office (GO); also advising on the use of a Trust account whose Trustee is L. Ron Hubbard.
PARTIES: Norton S. Karno, attorney; Henning Heldt, Deputy Guardian U.S. (DGUS); Joel Kreiner ("Joel"); former Deputy Guardian Legal U.S., position unknown, but representing CSC as attorney in actions involving IRS; Mary Sue Hubbard, Commodore's Staff Guardian Office (CSG); Guardian Office Worldwide (GWW); Martin Greenberg ("Marty"), accountant; United Churches of Florida (UCF); Mary Heldt, Deputy Guardian Finance U.S. (DG F US), Mary Rezzonico, Deputy Guardian Legal U.S. (DG L US); Purportedly, L. Ron Hubbard; other parties/organizations unknown
BACKGROUND AND NOTES
The three dispatches below, from Deputy Guardian U.S. Henning Heldt to L. Ron Hubbard, describe a meeting involving Norton S. Karno in which Karno is clearly an important insider with CSC and the GO, meeting with top Guardian Office officials and discussing tax matters, relations with IRS, corporate relationships, financial matters, and even advising on the use of a trust account that L. Ron Hubbard is the Trustee for. For the record, Joel Kreiner is mentioned by first name in these documents, and Kreiner's position in CSC and the GO is an odd one at the time; formerly the Deputy Guardian Legal U.S., he had "stepped down" in June 1974, but during 1975 was the "Church's attorney" dealing with IRS in an audit, according to a later ruling in Commissioner of IRS vs. CSC.
Here are the documents:
25 November 1975 COMMODORE
DGUS cc: CSG
RE: GOLDMINE Yrs: 22 Nov 75
Goldmine has produced instantaneous VGI's on the DG Legal US, DG Finance US, Marty and Joel, and Karno. CofSofC ownership had been mentioned a number of times, particularly by Karno, but we had not thought of this method of turning ??? CofSofC ownership into a Lead Pipe Cinch. The right item of course makes the N/A Corp work quite worthwhile, even though we are not using it. All concerned feel the work has paid off.
Goldmine will be in the 26 November mailpack to WW for Secret Issue, and I have separately noted the persons to whom the targets are assigned. A copy will be sent you separately.
A brief rundown of the points covered today with Karno.
1. Estimated Tax
Per Target 5, this is to be reestimated with great care. Karno mentioned this point, saying that if Marty came up with ??? using standard accounting procedures, we had best prepare a higher figure for protection from seizure. Karno figures that if it comes down to a seizure action, the IRS will be behaving so insanely that it is likely to inflate their already flimsy accounting procedures.
Target 5 will cover this in detail and will be reviewed by Karno.
2. Available Funds
I do not have all the CofSofC figures up to date here, but will shortly. Preliminarily I have excellent news on covering the indebtedness. Per Lola, CofSofC ?? Account Balance is $7,100,000.00 approximately. Defense funds for CofSofC total $2,535,563.33 as of 30 Sept 75. Subtracting $3,100,000.00 for Fort Harrison, Bank Building, Cars and various costs, the remainder is in excess of $6,500,000. This leaves funds for purchase of Building 13, and the covering of Marty's 14 Nov figure.
To bring this fully into the field of Lead Pipe Cinches, I discussed with Karno the availability of Trustee Funds for the purpose of a Bond, and he agreed those could be used. Trustee Funds totaled $3,372,000.00 at the end of 1974, nearly a year ago.
While 4, 5, 6 and 7 must be worked out in detail, it appears on a preliminary basis that the liability is covered. Not that this fact should become widely known immediately, as this plan includes a very ??? but ??? expense for Income Demand purposes per Building Fund Policy which delights my finance trained heart.
Since the purpose of SLD is to act as CofSofC nominee in this matter, it would be excellent if the stock would be owned by CofSofC. This fact would never appear in CW, and would remove any possibility of IRS taking a shot at the CofSofC-SLD relationship.
Also concurrent Board Meetings on the part of CofSofC and SLD&LC would probably knock out the need for any backdated contract, and since Board Minutes are commonly written well after the meetings the reocrd, no stigma is attached if these are dated to be a few weeks or months after the date of the meeting. Full CSW will follow on this point.
UCF is left without a lease, and very little assured income, and a function of fronting for the CofSofC on accounting and PR basis. We gave some thought today to how UCF can maintain its image without a lease or income, bring Churches and religious people together at the Harrison despite the fact of no lease or title to the property.
A possible solution presented itself: UCF is a CofSofC controlled corporation, formed for the purpose of Uniting Churches and religious people, revitalizing religion into an effective force to arrest the decline of Western Society. It is not a creation of CofSofC for its own direct self interest, rather the indirect interest of revitalizing society. As this fits into Targets Defense, this can be continued by PR Bureau on an active basis all over the country, or on a limited basis, however we wish.
Since UCF is a subsidiary of CofSofC it can be funded by CofSofC as to its PR activities. And since its a part of CofSofC, it may lease, rent and use CofSofC space for its religious purposes. Also personnel may transfer freely back and forth, a factor which can prevent logistic difficulties.
Yet, to the outside world in Clearwater, UCF may represent itself as the user of the Harrison, and even that CofSofC is a member. It can keep doing what it's doing which is from all reports quite successful. From the outside, the whole operation can be made to appear to be UCF and Members. Yet corporate distinctions that could make these appearance difficult to maintain (personnel, income) can be very loose.
UCF can fade out, or not, when CofSofC is ready to surface. The relationship between UCF and CSC is simplified by the fact that in the ultimate analysis it does not have to be truly distinct or at arm's length.
The finance handling can continue exactly as per ED US Base Order 32-4. It could even progress into a situation where UCF turns the Service Account over to us and we use and report it as our own (no real problem on this set up).
This solution is being scrutinized closely and CSW will be presented for your OK on the matter.
So all systems are go here, and the fast compliances will demonstrate the rightness of the program. I am very pleased with this solution (and certainly don't consider cavalier), as I was a bit worried about the N/A Corporation solution and getting all the amazingly complicated bits and pieces done properly. The particle flow here has increased amazingly, and this of course is leading to a Power Condition. The work and support is paying off in the highest morale ever, and is a great pleasure in all respects.
[NOTE: The "Karno Conference" described in this 5 December 1975 dispatch takes place on 25 November 1975]:
5 December 1975
5 December 1975
RE: GOLDMINE: KARNO CONFERENCE 25 NOV 75
Attached is the report I wrote immediately following conference with Karno. I will in this cover the conference itself more specifically:
Attending the conference were myself, Marty, CPA US, Mary Heldt DG F US, Mary Rezzonico DG L US.
First, I summarized the plan and the reasoning behind it. I then took up various points with Karno.
1. Transfer of CSC funds to OTC (as per Target 5):
From the planning we had on N/A Corp, it seemed to me that the strongest position to support CSC ownership would be accomplished transfer prior to 1 Dec Fort Harrison closing. I brought this up and Karno confirmed.
2. Estimation of Tax:
Marty and Karno went over the estimation of tax briefly going over various penalties and interest that should be included. Karno brought up the fact that if the IRS was to reverse its current trend, and take an insanely irresponsible action against the Church, that the assessed figure would probably be inflated. Karno went over the reasons he felt it would be impossible for IRS to move in this direciton. As a handling, we decided that Legal Bureau would fully research jeopardy assessment and seizure proceedings, and that the situations revealed in this research would be included and handled as part of Target 5.
3. Use of Trustee Funds:
Following the above we discussed whether the Trustee Funds could be sued [sic: "used"] for a bond to protect CSC in a seizure action. Karno agreed that those could be used. He also mentioned that if a jeopardy seizure incident occurred, the niceities of whether this was a strictly proper use would be of minor consequence; if the IRS prevailed in their seizure action, it would not be based on Trust Funds being used as the action would precede any such use. If the IRS did not prevail, the magnitude of their overt would overwhelm all technical niceities. Further the Trustee Funds are for defense of Churches, and posting bond in such an instance would qualify as defense.
4. SLD - CSC Relationship:
This was discussed and Karno recommended CSC own the shares (note: it may be advisable to alter this recommendation based on keeping CSC - SLD relationship hidden from IRS. Further research and report on this to follow).
5. UCF - CSC Relationship:
We discussed UCF - CSC relationship, and I proposed what we had previously worked out - that UCF be part of CSC. Details of this proposal are in the CSW on UCF Corporate Relationships of 3 December. Karno concurred.
6. UCF Handling CSC Funds:
This was discussed and no problems foreseen.
[NOTE: Unknown date; probably 6 December 1975 based on other related documents and internal references.]
Attached is the original typed Goldmine Program. I have one of the carbon copies of this Program here, plus xeroxes. Also attached is Duke's report on the Target by Target of Goldmine, and a separate report from me on the Karno conference of 25 November, including my 25 November 75 report on the Conference.
The following have been completed:
1a and b: The deeds have been executed conveying title from SLD to CSC for the Bank Building and Fort Harrison. Compliance in 5 Dec mailpack.
3: OTC has been repaid by CSC for all funds it (OTC) had transferred to SLD. RRP has received its funds back from OTC. Full explanation and documentation have been worked out, so the transation is obvious on accounts that CSC did purchase the buildings. Compliances from Legal and Finance sent 5 Dec mailpack.
5: Reestimation and full report sent in 5 Dec mailpack. This took a little longer than expected as we found a bug that could have bugged the major target if not overcome. This bug was the fact that the IRS can make jeopardy assessments and seizures far in excess of actual tax liabilities, and have been supported in doing so by the courts in the past. While IRS's use of jeopardy assessment or seizure against the Church is unlikely in the extreme, it was the realization that any such action would not involve Fort Harrison or Bank Building properties (as these are recorded as owned by SLD, not CSC) that cinched this one.
As additional protection on jeopardy actions we are obtaining internal IRS procedural manuals showing what internal procedures IRS must go through to apply the jeopardy asessment/seizure actions. From the data contained therein, we can set up an early warning system so any jeopardy action can be predicted and a local handling prepared and hopefully initiated prior to the actual assessment on seizure.
12: The precentages of USB current income needed to cover tax liability on current income has been worked out.
To be completed are:
2: The contract predating money transfers will be mocked up, sent for approval and signature by SLD Board Monday or Tuesday.
4: US Finance Bureau will have the balance sheet up this week. The Flag CSC Bank Account Balances have taken some work to get straightened out and complete (it turned out CSC Lux Account had a substantial [amount?] of Trustee Account Funds in it).
6. and 7: Will follow the completion of 4. directly.
8, 9, 10, and 11: Are being coordinated with Barbie, and may take a week or two to work out and then another period of time to implement. Also the type and location of deposit accounts must be coordinated with bond company requirements for bond security.
15, 16, 17: Plans for each US org will be finalized and sent up this week for approval and implementation.
18: Recording of deed in CSC's name will be delayed for close to a year in any event, per current planning for property tax exemption. It may require extending depending on results of CSC audit and tax exemption, and whether current jeopardy actions are revised by a bill currently before Congress (Taxpayer's Bill of Rights is a proposed law with good backing that would severely reduce IRS' powers in jeopardy actions and greatly increase the security of our operations. Naturally we are pushing this).
That is the current scene.
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