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Why Prairie Meadows is Losing Tax Exempt Status

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ALTOONA, Iowa -- "What`s the primary purpose of Prairie Meadows?" asked Stephen Gara - Associate Professor & Director of the School of Accounting at Drake University. Gara says the answer to that question is at the center of why the IRS has decided that Prairie Meadows should lose its tax exempt status.

According to the IRS, "to be tax-exempt as a social welfare organization described in Internal Revenue Code (IRC) section 501(c)(4), an organization must not be organized for profit and must be operated exclusively to promote social welfare."

And while Prairie Meadows gives away lots of money for community betterment every year, Gara says the IRS' concern is that a large amount of revenue is being used for other purposes; like executive compensation and paying more than 90 percent of $2 billion a year in bets or gross receipts, back into the hands of gamblers.

“The IRS’s concern was that there was a large amount of the revenue that was coming in was being used for other than community improvement purposes, such as executive compensation, but also a lot of it was being paid back to the winners,” said Gara. “So, they brought in about $2 billion of revenue, but over 90% of it was then paid back to the gamblers, so the argument then is, from the IRS’s viewpoint, is you know, you may be a community betterment organization, but you’re also a casino and in that regard, you’re competing with for-profit businesses, and of course, obviously, if you’re not paying income tax, then that gives you an advantage, if you will, over a for-profit casino, because that’s one less expense you have to pay."

“Is it just a casino like Horseshoe Casino, like the ones in Council Bluffs? You know, where’s the community improvement part? I mean, granted, you know, over $30 million was going back to the community, but the question is $30 million, relative to $2 billion, is that an insignificant sum? Or, should you look at it more is $30 million going back to the community, based on, you know, the couple hundred million that the casino gets to keep after paying back its winnings?” said Gara.

Prairie Meadows will have 30 days to respond and make a case for why it should retain its tax-exempt status.

Channel 13 has made numerous attempts to reach out to Prairie Meadows for comment, and the organization is referring all calls to its attorney Tom Flynn. Channel 13 has also made numerous attempts to reach Mr.

Channel 13 has also made numerous attempts to reach Mr. Flynn but have not heard back from him. Channel 13 also reached out to the IRS but was told, “Federal privacy laws prohibit us from commenting on any individual taxpayer or case.”