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Civic Skinny

Others hover as IRS takes on Prairie Meadows.
County, the landlord and beneficiary, has key role.

7/13/2016

The fight between Prairie Meadows and the Internal Revenue Service could last years. It will cost a jackpot in legal fees. And it can’t be settled unless the Polk County supervisors are invited into the negotiations.

That seems clear.

This, too, seems clear. Before this thing is settled, the Legislature and the Racing and Gaming Commission might have to step in.

And this is almost clear: horse-racing at Prairie Meadows is imperiled — some think that is a good thing, some a bad thing — and the way money is handed out, and to whom, probably will have to change.

In other words, this is really serious and really complicated.

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The Internal Revenue Service makes two basic arguments in threatening to revoke the tax-exempt status of the racetrack and casino in Altoona and collect $60 million in taxes and penalties for the years 2012, 2013 and 2014.

First, it says, when it renewed Prairie Meadows’ tax-exempt status in 1997, it did so with the understanding that Polk County “would oversee the operation and have a significant voice in the operation” even though the county itself does not hold the gaming license.

Second, it says, to be tax-exempt an organization must provide services that “lessen the burdens of government” or “promote social welfare.”

Prairie Meadows fails on all counts, the IRS claims in its book-length notification to the casino board.

The county, as landlord of Prairie Meadows, appoints four of the 13 Prairie Meadows directors, but they “do not have a significant role in the operation,” the IRS says. The four members “are very passive” and have had “no compelling influence” on the board. Minutes of meetings “did not reveal any decision in which Polk County [representatives have had] a significant role or influence on the decisions” made by Prairie Meadows.

In fact, Prairie Meadows “is wholly controlled by the officers and not the county.”

Only the county can determine what its “burdens of government” are, the IRS claims. And since the county doesn’t control the casino, the casino can’t claim it is reducing those burdens with its various donations and is thus tax-exempt.

Giving money to charities does not necessarily “promote social welfare” either, the IRS says. An organization that is tax-exempt must show that it operates “exclusively” to promote social welfare. In contrast, Prairie Meadows is primarily a business like any other casino. “The only difference…is that Prairie Meadows does not pay taxes,” the IRS letter asserts.

The letter goes on to say that a tax-exempt organization cannot serve private interests — like the horse industry. “In this case, the forbidden private benefit originated from the purse money paid to the horse owners. The purse was derived from income from the gaming activity. [The Internal Revenue Code] specifically prohibits private benefit….”

Prairie Meadows has already hired a big-time Washington lawyer — Marcus Owens, the former director of the Internal Revenue Service’s “exempt organizations division” and who now works for a firm that bills as much as $975 an hour. He has sent an 18-page response to the IRS, saying that Prairie Meadows operates “under the control and guidance of Polk County” and pointing out, among many other things, that Iowa’s Code requires that the Prairie Meadows board “represent a broad interest of the communities.”

That is the case, and it’s a rule that at least some Polk County supervisors were arguing against as long as 20 years ago.

Now, though, the supervisors will have to get back into the fray. If there is to be a settlement —and, of course, Prairie Meadows simply could lose — it’s clear that part of that would require a large degree of control by the county. That’s not something that Prairie Meadows seems to want, and it’s not something the IRS could simply negotiate without the participation of a county lawyer at the table.

There are at least two other complications for Prairie Meadows:

Only a non-profit organization can hold a gaming license in Iowa, but “non-profit” and “tax-exempt” are not the same. So one choice for Prairie Meadows could be simply to negotiate out of the past-tax assessment and begin paying taxes and keep the gaming license. Those taxes would run $15 million to $20 million a year, which could be found if Prairie Meadows simply would get out of the horse-racing business — which eats up some $30 million in gaming revenue. But Iowa law requires Prairie Meadows to operate a track.

On top of that, Prairie Meadows’ lease with Polk County expires at the end of 2018. County supervisors could refuse to renew it. If that loomed, other casino management companies — tax-paying ones — from near and far would swoop in and try to make a deal, getting the county to set up a nonprofit to hold the license, seeking approval from the state, negotiating a deal to manage the casino, convincing the Legislature to close the racetrack, and guaranteeing the flow of money to the county in rent and a share of the revenues but without the control and tax complications now being disputed.

Indeed, you can already hear them buzzing overhead — along with platoons of lawyers. …

It turns out that not all the YMCA board members were clued in on the plan to mollify Bill Knapp by creating a job for former Governor Chet Culver at the Y. As they arrived at the board meeting, some directors were surprised to see Culver — and his wife and two children — waiting there and were even more surprised to hear that he was being named to the No. 2 post at the organization. Surprised and irked — not necessarily by the appointment but by the back-room way it was handled. …

Back to Prairie Meadows: Did someone mention the name Gary Kirke? …

All in the family: In 2014, the latest year for which data are available, Prairie Meadows gave $200,000 to the On With Life Foundation, which supports the Ankeny-based group that helps persons with brain injuries. Jeff Lamberti is president of that foundation. He also is chairman of the Iowa Racing and Gaming Commission, which regulates Prairie Meadows. He also is a member of the family that owns Casey’s General Stores in Ankeny, a company that was led until this year by Bob Myers. Bob Myers is the chairman of Prairie Meadows.

In 2014, too, Prairie Meadows gave money to seven Catholic churches in the county and to the Roman Catholic Diocese of Des Moines. The gifts totaled about $90,000. It gave money to one protestant church — $2,500 to First Christian Church. It gave no money to any other churches. …

Prairie Meadows makes about $2 million a year in fees off its ATM machines. …

Real estate:  Ken McCullum, an executive at Principal, last month paid $1.9 million for a house at 1625 Tulip Tree Lane in the Glen Oaks section of West Des Moines. The seller was Douglas DeHaan. The 12-room, 7,000-square-foot house was built in 2007, sits on nearly two acres, and is assessed at $1,167,100. That appears to be the fourth-highest price for a single-family home sold in Polk County in the past 10 years.

One other thing: The convention hotel being built downtown is set up as a nonprofit seeking federal tax-exempt status because it will “lessen the burdens of government borne by the county.”

Of course, the hotel could end up increasing the burdens of government. CV

Democracy waits

Two steps forward:

“If our founders intended the infamous crimes clause to mean all felony crimes, we must presume they would have used the word ‘felony’ instead of the phrase ‘infamous crime.”…“While the legislature may help provide meaning to the constitution by defining undefined words and phrases, the definition provided by our legislature itself must be constitutional.”…“In the end it is for the courts to interpret the constitution.”…“Our constitution is supreme.” — Chief Justice Mark Cady, April 15, 2014.

“While we strive to uphold the constitutionality of a statute when possible, we do not follow this approach by lowering our expectations for justice or accepting the imperfections we discover as an inevitable part of justice.” — Chief Justice Mark Cady, May 27, 2016.

And one step backward:

“The legislative judgment was clearly expressed, and there are no facts or scientific evidence to undermine that judgment….Courts are unable to move issues forward on their own perceptions of infamy in today’s society….There is insufficient evidence to overcome the 1994 legislative judgment [that all felonies are infamous crimes], and we must accept it today as the standard for infamous crime. It will be up to our future democracy to…engage in the debate that advances democracy.” — Chief Justice Mark Cady, June 30, 2016.

And thus democracy must wait for some 50,000 felons who have served their time, paid for their crime, and re-entered society. But still can’t vote in the state of Iowa. CV

 

— Michael Gartner

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