how the Church of Scientology makes $500 million every year

My friend Sam Fong, founder of the Bay Area-Merced Homebrew Investments Club last year, recently forwarded me an interesting article from Portfolio.com about the money trail of the Church of Scientology -- the church that some of Hollywood's infamous icons such as Tom Cruise, Katie Holmes and John Travolta worship.

Here's the shocking statistic: despite its controversial religion, intense scrutiny by the U.S. government, history of lawsuits, and the recent economic recession, the church still managed to generate a staggering estimated $500+ million in revenues in 2008!

Total estimated annual revenue: $500 million to $550 million

Estimated revenue sources:

• Fundraising: $50 million to $100 million (10%)
• Membership Fees: $400 million (80%)
• Consulting: $50 million (10%)

So how do they do it? I learned three key strategies from this article employed by the Church of Scientology:

1) Diversification of Assets and Protection from Lawsuits

The Church of Scientology has reportedly spread its revenues—and its liability—among a vast array of independent trusts, corporations, and nonprofits. All are reportedly tightly controlled by David Miscavige, a second-generation Scientologist who has run the church since the 1986 death of its founder, science-fiction author L. Ron Hubbard.

The Church is smart and financially intelligent.

This asset diversification strategy is used by many rich people as well to "hide" their wealth behind vehicles such as corporations and trusts to protect their assets from creditors, potential litigants, and potentially even the IRS.

I'm assuming the Church also has a powerful team of lawyers which ensures them access to the legal protection and counsel they need to maintain their assets and even win lawsuits against the IRS.

2) Obtainment of Permanent Tax Haven Status

While so many corporations and big fish have for decades been seeking loopholes in U.S. tax code and foreign tax havens to minimize their taxes (and even spending millions to hire business law professionals and accountants to assist them in doing so), the Church of Scientology have been able to something many others could not:

The church won tax-exempt status in 1993 and is not required to file annual returns with the I.R.S.

It's often said that the best-kept records of any government are the tax records of its citizens. No wonder the church is under so much scrutiny by the U.S. government!

A perspective of how much taxes people pay each year:

According to the financial guru Robert Kiyosaki, average Americans today work five to six months for the government before they make enough to cover their taxes! That's half a year's worth of income gone to the government folks...

A hypothetical thought for you to digest:

Imagine if series of corporations and small-businesses (or heck, let's count hedge fund firms as well) banded together and called their association a church that preaches a self-proclaimed, pro-wealth relgion to gain the tax-free status... who wouldn't want to put their investments and run their businesses in this tax-exempt haven?

I'm not a guru in business tax law so I don't know if such a church is legitimate and legal; but, that's kind of what I see the Church of Scientology portrayed as. Since it won a previous lawsuit against the IRS, what would stop another similar church from being established?

3) Maintaining a loyal customer base

This one is a given. Having somewhere between 8 to 15 million members in 160 countries worldwide pay for recurring "tithes" and religious services goes a long way...

Scientology boasts hundreds of organizations, centers, and missions around the world, which charge fees to members. (Followers also pay to be “cleared” of their problems via counseling sessions known as auditing, which average $500 an hour.) In something akin to a franchise model, the centers send 12.5 percent of such fees to Scientology’s management arm.

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