Misuse of nonprofit status bigger than 1 casino


Community leaders in the Des Moines area are wringing their hands over the federal government’s decision that Prairie Meadows Racetrack and Casino has been improperly allowed to operate as a nonprofit organization.

Here’s what the public should be asking: Is this the first step by the Internal Revenue Service to clean up the ranks of tax exempt organizations that are growing like crabgrass, tripling in number in the past 20 years?

Most of us, when we think of nonprofit organizations, look at legitimate charities like the American Red Cross and organizations that take on important but unprofitable tasks that for-profit businesses would not, like sheltering the homeless or feeding the needy.

But some nonprofits are virtually indistinguishable from for-profit companies.

Iowa bankers like to point to credit unions as an example. Bankers remind us they pay corporate income taxes, whereas their credit union competitors do not. There are insurance and financial services companies that escape corporate income taxes for the same reason.

And then there are those nonprofit organizations whose tax exempt status leaves people shaking their heads.

Until last year, when public criticism became too much for league officials to bear, the National Football League was a nonprofit organization. The 32 NFL teams have always been for-profit businesses, and they bring in the bulk of the NFL’s $11 billion in revenue.

But the NFL central office paid no taxes on its revenue, totaling tens of millions of dollars. Commissioner Roger Goodell was paid a tidy $35 million in 2013, the most recent year for which his compensation is available, for guiding the nonprofit organization. His public relations man was paid $2 million.

The NFL isn’t the only sports organization operating as a nonprofit. The National Hockey League and PGA Tour both are tax exempt. So is the National Collegiate Athletic Association.

The most recent deal for television rights to the NCAA men’s basketball tournament sold for $11 billion. Most of that goes back to NCAA member schools, but the umbrella organization had revenues of $875 million in 2013, the latest year for which statistics are available.

NCAA president Mark Emmert was paid $1.7 million in 2013 and 87 employees received more than $100,000 each.

“The idea that a person becomes a multimillionaire running a nonprofit that is supposed to provide a service that can’t be provided by the market is absurd,” said Ken Berger, president of the watchdog organization Charity Navigator, in a New York Times interview in 2014.

Experts estimate that if nonprofit professional sports entities were required to pay corporate income taxes, along with sales taxes and property taxes they also avoid, there would be tens of millions of dollars flowing into the federal, state and local governments’ treasuries.

Of course, some people contend that no business or organization should have to pay taxes. But that’s not the way the system works, and organizations like the NCAA and PGA get a lucrative benefit that Mom and Pop businesses on Main Street America do not receive.

Back to Prairie Meadows: The Altoona horseracing track and casino is organized as a nonprofit social welfare organization. Gamblers, along with patrons of its hotel, restaurants and convention center, spend $2 billion a year there.

Most of that revenue is returned as prizes to gamblers. Its 1,700 employees receive $58 million a year in wages and benefits, and chief executive Gary Palmer was paid $650,000 in 2012, the most recent year for which his pay is available.

Palmer’s role as Prairie Meadows’ top executive has been beneficial for his family, too.

WHO-TV reported last year that a $1 million insurance contract was awarded to Frank Berlin Associates, a company where Palmer’s son-in-law is a partner. A $150,000 web design and marketing contract was awarded to the Maclyn Group. The co-owner of the Chicago business is Bill Murphy, another Palmer son-in-law.

To satisfy its obligations as a nonprofit entity, Prairie Meadows makes about $21 million a year in grants to area governments, schools, churches and other organizations. That amounts to less than 1% of Prairie Meadows’ revenues — but recipients of those grants worry the IRS’s decision on the nonprofit status will jeopardize future gifts.

Prairie Meadows critics find irony that it is classified a social welfare organization. They point to problems gambling creates, tearing apart families and leading otherwise-law-abiding people to embezzle from employers for money to feed their addiction or to pay debts they’ve run up.

Prairie Meadows is asking the IRS to reconsider the decision to end its nonprofit status. In the meantime, Congress and the IRS should make sure the Altoona business isn’t the only nonprofit entity to go under the federal government’s microscope.