FOR IMMEDIATE RELEASE

Franchot: Crackdown on Tax Schemes Yields $12m Talbots, Other Major Company to Pay

First 'REIT' Case, DE Holding Company Decision Bring Needed Revenue

Annapolis, MD (October 13, 2008) - Comptroller Peter Franchot announced today that two major corporations are paying nearly $12 million to the state in avoided taxes as the result of his agency's aggressive enforcement of Maryland's tax laws, including the first settlement ever from a change - initiated by Franchot - in the way so-called "captive" Real Estate Investment Trusts are treated for taxation purposes.

"I am committed to ensuring that everyone pays their fair share, especially in these tough economic times," said Comptroller Peter Franchot. "The vast majority of Maryland businesses play by the rules, but we will not allow a few large corporations to gain an unfair advantage by flouting our tax laws."

Last year, Franchot announced that his office would begin auditing corporations trying to avoid paying taxes by using "captive" Real estate Investment Trusts, whereby companies place their holdings in real estate trusts and take unauthorized deductions. The Comptroller's administrative action was complimented by legislation enacted by the Maryland General Assembly in the spring of 2007. The $10.8 million dollar payment from the corporation in question marks the first case in which an audit has been completed and a tax liability settled in a "captive" REIT case. The agency has a pending $5.7m assessment in another REIT case and several audits underway involving this type of tax-avoidance scheme.

"My agency took the lead in closing this tax loophole and has been tireless in their pursuit of the money that is owed the State of Maryland by companies exploiting it, Franchot continued. "As hardworking families struggle to make ends meet, we're going to make sure that everyone is paying their fair share."

In the other case, the Circuit Court for Baltimore City affirmed an April 2008 decision of the Maryland Tax Court, which found Classics Chicago, Inc., a subsidiary of the well know retailer, Talbots, Inc., to be liable for corporate income tax for 11 years, from 1993 to 2003. The Maryland Tax Court ordered Classics to pay the state $1,092,336.00 in back taxes along with interest and ten percent in penalties. This case was the most recent victory for the Comptroller's office in an aggressive effort to crack down on corporations avoiding taxes using Delaware Holding Company tax schemes.

The corporate relationships and transactions in this case are very similar to those found in the 2003 case against SYL, Inc. In that case, the court found the company liable based on the presence of the parent within Maryland and the fact that the subsidiary had no economic substance.

Classics Chicago argued in the appeal that the Maryland Tax Court did not correctly apply the 2003 decision of the Court of Appeals in the SYL and Crown Cork & Seal (Delaware) matters. The Circuit Court did not agree and ruled that the economic substance test used by the Tax Court was in accord with the Court of Appeals decision from 2003.

Media Contact: Joe Shapiro, 410-260-7305