The Supreme Court agreed Monday to hear a Reagan Administration appeal aimed at making it easier for the government to conduct tax-fraud investigations.
The justices said they will use a Los Angeles federal court case involving the Church of Scientology to settle a dispute over the power of the Internal Revenue Service to obtain and use confidential documents, particularly communications between lawyers and clients.
The government, which has had numerous legal battles with the Scientologists, began an investigation in 1984 of the tax returns of the church’s founder, L. Ron Hubbard, who died on Jan. 24, 1986.
The IRS said it suspected that millions of dollars in church funds were transferred to Hubbard in the late 1970s and early 1980s in a scheme to protect the church’s tax-exempt status and avoid paying taxes on the money.
The IRS issued a summons in October, 1984, for 13 confidential documents held by the Los Angeles Superior Court in connection with a private lawsuit involving the church and a disaffected former member.
A federal judge in Los Angeles, asked by the government to mandate compliance with the summons, ruled that five of the documents should be turned over to the IRS but only on condition the IRS not disclose the contents to any other governmental agency except in connection with a criminal tax prosecution.
The judge also blocked the IRS from obtaining the other eight documents, particularly taped conversations of a meeting between church members and lawyers for Hubbard and Scientology. The judge ruled that the meeting represented a confidential lawyer-client communication and was exempt from disclosure.
The 9th U.S. Circuit Court of Appeals upheld the judge’s ruling in 1986.
The Justice Department, appealing on behalf of the IRS, proposed that a federal judge examine the confidential documents to determine whether there is evidence of fraud.