RE: IRS Beach Parking Matter

July 26, 2012

The Ocean Pines Association’s Board of Directors, at a Board meeting yesterday afternoon, decided not to appeal, to the United States Supreme Court, the decision of the U.S. Court of Appeals which had previously upheld the decision of the U. S. Tax Court and the position of the IRS in the matter of the Beach Parking Operations taxability.

As previously announced and broadly communicated by the Association, it has, in consultation with its independent auditors and legal counsel, been determining the Estimated Liability which is required to be recorded as of April 30, 2012, in accordance with Generally Accepted Accounting Principles, and the amount of the expense required to be recorded in the FY 2012 audited financial statements.

The Estimated Liability has been determined to be $340,000 at April 30, 2012 for federal and Maryland taxes and interest. This amount, combined with the approximately $119,000 previously paid for federal taxes and interest for FY 2003 and FY 2004, results in an expense of $459,000, which will be recorded in the audited FY 2012 financial statements.

The multi-year appeals process has resulted in several of the years since FY 2004 no longer being subject to taxes because the period for assessing a federal or state deficiency has expired under the statute of limitations. This is the reason the ultimately determined Estimated Liability and recorded expense are substantially less than the amount of potential exposure previously communicated.