Following an 18-month investigation, the Internal Revenue Service recently declared it would end the nonprofit status of Prairie Meadows Casino, Racetrack & Hotel in Altoona, Iowa. The IRS contends the operation appears to be a commercial enterprise. However, Board Chairman Bob Myers said, “We know we have a very strong argument to continue operating the way we do right now. You see how much money we gave back to the community this year? We want to continue doing this. I assure you this has nothing to do with any financial impropriety or excessive wages.”
Attorney Tom Flynn said Prairie Meadows is unlike Las Vegas casinos because it lessens the government’s burden by supporting the state’s horse industry and by giving money to the community. Therefore, Flynn said, Prairie Meadows should receive an IRS 501(c) (4) exemption as a social welfare organization. Such an exemption does not prohibit a nonprofit from operating a commercial enterprise as long as that entity is lessening the burden of the government, Flynn said. It only would be required to donate 3 percent of revenue to charity. Flynn added because the government wants a cut Prairie Meadows would lose $30 million annually in federal tax breaks.
Myers said Prairie Meadows will go through the IRS appeals process and take the issue to federal court if necessary. He said board members, who held a closed-door meeting to consider their options, will argue against the “errors and mistakes” in the IRS decision. Flynn stated the board will make the audit available to the public when it formally responds to the IRS. “We do not want the audit out and circulated until we have our chance to put together our response and why some of the facts and conclusions stated by the IRS are improper,” Flynn said.
In a statement, the board said, “Prairie Meadows will be vigorously defending its status during further discussions with the IRS. Even though federal tax can be a complex subject, as the process moves forward, Prairie Meadows will endeavor to keep the community appraised of developments so that it may better understand the issues raised by the IRS and Prairie Meadows’ response to such issues.” The statement said Prairie Meadows wants the community to have “a complete understanding of the matter.”
Flynn noted Prairie Meadows worked with the Iowa Legislature to receive its nonprofit status when it opened in 1985. Prairie Meadows was audited by the IRS in 2004 for its 2002 tax return but the IRS took no action at that time.
The board said in 2015 it provided 1,400 jobs with wages and benefits totaling more than $54 million. It paid rent to Polk County totaling $15.6 million and distributed more than $10 million to Polk County, $4.3 million to Des Moines, $1 million to Altoona, $763,000 to the Polk County School District and more than $4 million to various charities.
