Prairie Meadows will keep its federal tax-exempt status, ending a battle that could have cost the Altoona casino upward of $60 million, officials announced Wednesday.

“It sounds like the IRS sort of came to their senses, which I figured they would do,” said Marc Owens, a Washington, D.C., tax attorney hired by Prairie Meadows to help fight the IRS decision. “The question is how long it would take.”

Prairie Meadows, which has operated as a tax-exempt nonprofit since 1989, learned of the IRS' plans to strip its tax-exempt status on May 12, following an 18-month audit investigation.

The IRS audit determined that Prairie Meadows was operating more as a business than “exclusively for social welfare purposes.”

It also found that the operation lacks oversight from Polk County, which was a stipulation for its approval as a casino.

“The only difference in the operation of Prairie Meadows Racetrack and Casino and a for-profit casino is only that (Prairie Meadows) does not pay taxes,” the IRS report stated.

In June, the casino filed an appeal that outlines the many ways Prairie Meadows “continues to be a valid social welfare organization.”

An IRS document dated Dec. 1, which the casino released Wednesday, said federal agents examining the case sought guidance from local attorneys as well as the Associate Chief Counsel, the chief legal adviser of the agency.

The document specifically references its review of state law, saying profits from horse racing and gaming are in accordance with the casino’s exempt purpose.

“Based on a review of the facts and circumstances, it was determined that the IRS should not pursue revocation at this time,” it said.

There are still tax issues being appealed, including what casino expenses are deductible. That includes revenue the casino earns from ATMs and hotel or gift shops.

Casino CEO Gary Palmer has estimated Prairie Meadows' liability is now less than $1 million, but Owens said he believes it’s possible the casino could walk away without owing the federal government anything.

A decision on the appeal isn’t likely for months, Owens said.

“The $1 million is a worst-case scenario,” Owens said Wednesday.

Prairie Meadows and Mystique Casino in Dubuque are the only casinos in the nation organized under 501(c)(4) of federal tax law, which allows civic leagues or organizations operated exclusively for the promotion of social welfare to avoid paying federal taxes.

Together, the two casinos provide tens of millions to government entities, community groups and philanthropic causes. The IRS has not questioned Mystique Casino's nonprofit status.

Each of Iowa's 17 other state-regulated casinos pays federal income taxes.

The casino’s appeal of the attempt to revoke its tax-exempt status was partially based on its argument that its operations are in place to reduce the burdens of government.

The casino, which first opened as a horse track with the help of a $40 million loan from Polk County taxpayers, has given back more than $1.6 billion to state and local governments, according to the casino’s estimates. That includes taxes, grants and lease payments to the county, which owns the Altoona facility.

The charitable contributions have in recent years funneled millions of dollars to economic development and to charities such as United Way. Lease payments to the county are used to pay debt associated with the construction of the Iowa Events Center.

Casino and county officials said those charitable contributions were most in jeopardy from the IRS’ efforts earlier this year.

“This is an early Christmas present to the citizens of Polk County,” Tom Hockensmith, a Democrat and chairman of the Polk County Board of Supervisors said Wednesday. “There’s a lot of relief from the board, too. I can tell you that.”

The casino's operations have continued to grow since its original tax-exempt status was issued.

Legislation passed in 1994 enabled the track to add slot machines the following year. They proved to be an instant hit, helping the track regain its financial footing and allowing it to quickly repay about $100 million in debt to the county.

The facility later added gaming tables, restaurants and a hotel and conference center.

Tom Flynn, an attorney for Prairie Meadows, said the casino argues that all revenue it generates goes towards its core mission.

“Our position is they are related to the tax-exempt status,” Flynn said. “Everything out here goes to support the whole constellation of products we offer.”