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Berlin, Ocean Pines News Worcester County Bayside Gazette Logo Berlin, Ocean Pines News Worcester County Bayside Gazette


Strike Four!

OCEAN PINES — For the better part of the last decade, the Ocean Pines Association has been fighting the Internal Revenue Service over whether or not the revenue it earns from Beach Club Parking is taxable. Courts and mediation have both found in favor of the IRS in the past and last week, in what might very well be the last gasp for the OPA’s chances, the United States Court of Appeals, Fourth Circuit, sided with all the lower courts against the Association. The IRS claims that revenue derived from the sale of Beach Club parking is taxable and seeks 
The IRS suit stems from a law that makes revenues earned from exclusive, private clubs taxable if they do not have a direct affect on a non-profit’s purpose. While the other OPA amenities — the Yacht and Country Club and the Indoor Pool, for example — are open to the public, Beach Club parking is not.
This opinion supports the Tax Court’s determination that the net income from the two parking lots and beach club is not “substantially related” to the association’s tax-exempt purpose.  
OPA Board of Directors President Tom Terry said that the OPA’s legal team is working closely with General Manager Bob Thompson to review the potential next steps. Although he has yet to hear officially from Thompson or the legal team, Terry said he was under the impression that there may still be legal remedies available to them.
If there are, whether or not the Board will consider them is another question altogether.
Should there be no further legal remedy, or no remedy the OPA Board of Directors feel is appropriate, there are still other options possible available to the association.
Terry said that Thompson is also working with the OPA legal team to consider negotiation possibilities with the IRS. Should the OPA decide the case is at an end it might be possible to negotiate a payment plan with the IRS to limit the bite of the payments due.
So far, the OPA has paid $119,171 in taxes from 2003 and 2004 as a condition of continuing to defend itself in the IRS suit. The payments were necessary to get a hearing in the Fourth Circuit.
The central part of the OPA’s argument had been that the revenue the company derived from the sale of parking spaces was substantially related to their purpose of promoting social welfare. 
Providing access to the Beach Club parking for members only was a way of looking out for the interests of the OPA membership, which owns the property.
In its decision the Court said:
“In sum, the net income derived by the Association from its parking lots and beach club benefits the private interests of the Association members rather than the general public. That income therefore is not ‘substantially related’ to the Association’s purpose of promoting social welfare, but rather is taxable as "unrelated business taxable income.’” 
Judge Diana Gribbon Motz, who wrote the Court’s opinion, cited three of the OPA’s arguments in support of their claim and dismissed each out of hand. The court was primarily interested in whether the OPA could demonstrate that the facility, particularly the parking lots, could be generated to promote the general welfare, rather than just the welfare of the OPA members.
Although the OPA argued that the Beach Club wasn’t truly exclusive given that the concessions and restrooms were available for use by the general public, the Court was unconvinced by the assertion.