PLR 200738019: Racetrack operator denied pension funding waivers

Plain-English summary

A nonprofit operator of three racetracks sought waivers of the minimum funding standard for its pension plans. The IRS acknowledged substantial business hardship from declining wagering revenue and rising operating costs. It denied the waivers because the hardship might not be temporary: the operator had entered Chapter 11, risked losing its racing franchise, and lost a financing partner for a proposed facility. The letter says excise taxes under section 4971(a) were due on the plans' funding deficiencies and directs the operator to file Forms 5330.

Ruling snapshot

• Question: Would the IRS waive the minimum funding standard for the operator's pension plans?
• Outcome: No, the IRS questioned whether the hardship was temporary.
• Key authorities: IRC § 4971(a).

Full text (IRS public release)

Significant Index No. 0412.06-00

200738019

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND
JUN 29 2007
GOVERNMENT ENTITIES
DIVISION

Re:

Dear

This letter constitutes notice that the Company's requests for waivers of the minimum funding standard for the above-named Plans for the plan years ending December 31,

have been denied. This decision was conveyed to the Company's Chief Financial Officer by this office by telephone on .

The Company is a private, non-profit corporation which owns and operates three thoroughbred racetracks within the State. The Company's primary sources of revenue are on-track wagering and the sale of its simulcast signal to various off-track betting organizations. A secondary source of revenue is the use of the Company's facilities for parties, corporate meetings, flea markets, and the storage of cars from local automobile dealerships. The Company's revenues, beyond the amounts necessary to conduct its operations, are transferred to the State.

200738019
2

Based on the financial information provided by the Company, it is clear that the Company has suffered a substantial business hardship. The thoroughbred horse racing industry has suffered an industry-wide decline in revenue from on- and off-track wagering. Many racetracks are turning to revenue from slot machines to ensure their business viability. The Company's highest margin business is on-track wagering. Each

wager yields of revenue. However, the trend has been toward off-track wagering, which only yields of revenue. Although the total dollars in wagering from all sources has increased, the Company’s net revenue has declined or remained flat over the last 10 years. During that period, the fixed costs in running the racetracks, such as labor, real estate tax, and fuel costs, have risen dramatically. The Company has reported losses for each of its fiscal years since 2001.

The Company was basing its financial recovery primarily on the bailout approved by the and the completion of its

However, the Company has subsequently filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. While the Company has indicated that this was merely a formality to force the to make good on the bailout, subsequent news reports indicate that the State is in the process of awarding the thoroughbred racing franchise to another entity. While the Company has sued to keep control of the racetracks that it owns and operates, the Company's financial future is in peril if it loses the franchise. Furthermore, the Company's financing partner in a proposed facility backed out of the tentative financing arrangement it had with the Company. These factors call in to question whether the Company's business hardship is temporary. Hence, The Company's requests for waivers of the minimum funding standard for the Plans for the plan years ending

have been denied.

You should note that excise taxes under section 4971(a) of the Internal Revenue Code are currently due on each of the accumulated funding deficiencies in the Plans for the plan years ending You should file Forms 5330 for each of the Plans as soon as possible to report and pay the taxes.

This ruling is directed only to the taxpayer that requested it. Section 6110(k)(3) of the Code provides that it may not be used or cited by others as precedent.

We have sent a copy of this letter to the Manager,
to the Manager, and to your
authorized representatives pursuant to a power of attorney on file in this office.

200738019

3

If you require further assistance in this matter, please contact

Sincerely yours,

Joseph H. Grant, Director
Employee Plans