IRS decides Prairie Meadows is for-profit operation
KENT DARR & PERRY BEEMAN May 12, 2016 | 7:39 pm
2 min read time
450 wordsAll Latest News, Government Policy and Law, Retail and BusinessThe letter from the government is in the mail, likely to arrive tomorrow and certain to say that Prairie Meadows Racetrack and Casino should lose its nonprofit status.
Tom Flynn, attorney for Prairie Meadows, said that during a conference call today with the Internal Revenue Service representatives, board officials were told an 18-month inquiry resulted in a determination that the operation should lose its tax-exempt status.
Prairie Meadows will have 30 days to respond and make a case for why it should retain its status, President and CEO Gary Palmer said today.
IRS officials claim that the racetrack and casino operation is one of the top 10 revenue-generating organizations operating as nonprofit social welfare agencies in the country, taking $2 billion a year in bets or gross receipts. However, about 92 percent of that money is returned to gamblers, Flynn said.
He said the IRS seems to believe that if the total operation does not lose its tax-exempt status, then other income, such as revenues from hotel, banquet and gift shop operations, should be taxed.
If the IRS wins its argument, Central Iowa stands to lose about $30 million a year that has been returned to a variety of charitable organizations and governmental bodies, Palmer said. Prairie Meadows rents the facility from Polk County.
The Prairie Meadows board was told in March that the IRS was considering whether to revoke Prairie Meadows’ status as a 501(c)(4) social welfare organization. The designation is granted to organizations that “exclusively benefit the social welfare and lessen the burden of government.” In other words, their profits go to charities and governmental organizations.
Signature projects that are being paid for by gambling revenues include the annual mortgage for the Iowa Events Center, and those revenues are factored into the construction and operating budgets for a convention center hotel, for example. According to Prairie Meadows, it has returned $1.4 billion in scholarships, grants for cultural projects and gambling taxes since 1989, the year it opened and the year its nonprofit status took effect. The status was reaffirmed in 1997 and 2002.
According to its nonprofit tax report for 2013, Prairie Meadows had nearly $2.2 billion in revenues, paid out $1.9 billion in purses and made $20.8 million in grants in Central Iowa. Also that year, the city of Des Moines received $3.9 million and Polk County received $10.4 million in fixed payments. In 2015, the fixed payment was converted to a percentage of gross revenues. Prairie Meadows also pays about $15.6 million in rent every year to Polk County.
Palmer said a Washington, D.C., tax attorney has been hired to represent Prairie Meadows.
Under state law, all casinos must give 3 percent of profits to charitable organizations.
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