Pueblo Nuevo Development

Schedule D, Page 3, Part X

“Income taxes - pnd is a nonprofit entity exempt from the payment of income taxes under internal revenue code section 501(c)(3) and california revenue and taxation code section 23701d. Each llc (except fifteenth and ardmore investments llc) is exempt from income taxes under california revenue and taxation code section 23701x or 23701h. Fifteenth and ardmore investments llc has elected to be taxed as a corporation. Deferred tax assets and liabilities are therefore recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carry-forwards, and deferred tax liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets and liabilities are individually classified as current and noncurrent based on their characteristics. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Pnd organization has evaluated its tax positions and the certainty as to whether those positions will be sustained in the event of an audit by taxing authorities at the federal and state levels. The primary tax positions evaluated are related to pnd's continued qualification as a tax exempt organization and whether there is unrelated business income activities conducted that would be taxable. Management has determined that all income tax positions are more likely than not of being sustained upon potential audit or examination; therefore, no disclosures of uncertain income tax positions are required. Pnd files informational returns in the u.s. Federal jurisdiction, and the state of california. The statute of limitations for federal and california state purposes is generally three and four years, respectively.”