Ocean Pines Ass’n v. C.I.R., No. 11-1029

Decided Mar. 2, 2012

The Ocean Pines Association managed a residential property area and enjoyed federal tax-exempt status as a non-profit organization. However, the Association also owned two revenue-generating parking lots and a beach club. The I.R.S. brought a deficiency action against the Association and the tax court granted summary judgment, finding that the income from the parking lots and beach club was not substantially related to the property’s tax-exempt purpose.

The Fourth Circuit affirmed. The income from the club and lots privately benefitted the members of the Association and did not have a causal relationship to the advancement of the tax-exempt purpose of the organization. That business was therefore not “substantially related” and is taxable income.

Full Opinion

-C. Alexander Cable

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