11/02/2007 12:00AM

Feds seek $1.6 billion from NYRA

EmailThe New York Racing Association is disputing a $1.64 billion tax assessment - that's "billion," with a "b" - that the federal Internal Revenue Service says the association owes from a five-year period beginning in 2000.

The tax bill, which the IRS laid out in a filing in U.S. Bankruptcy Court for the Southern District of New York on June 5, includes $866 million in taxes and interest on the payments for "unsecured priority claims" and $752 million in penalties and interest on the unpaid taxes. NYRA filed for bankruptcy late last year.

It is unclear from the filing how the IRS determined the tax bill, but the total amount of taxes and the penalties would exceed the revenue that NYRA claimed throughout the five-year period. From 2000 to 2005, according to documents filed with the New York Racing and Wagering Board, NYRA had revenue of $250 million to $300 million in each year in the period, or less than $1.5 billion total.

Nan Dillingham, the IRS adviser and reviewer who signed and filed the claim, did not return a phone call on Thursday.

In a response that NYRA filed on Wednesday with the bankruptcy court, an attorney for NYRA, Brian Rosen, wrote that NYRA believes that its liability to the IRS does not exceed $5 million, and that the IRS incorrectly calculated the tax liability in a number of ways, including counting NYRA's handle as its revenue, rather than the takeout from handle.

"It is clear from these IRS documents that, despite examining NYRA's books and records for three years, the IRS still does not understand the basic economics of NYRA's business," Rosen wrote.

A hearing to discuss the IRS claim is scheduled for Dec. 6 in bankruptcy court, according to Rosen.

According to Rosen's filing, the IRS claims that NYRA underreported its income by $758.2 million by failing to report its handle and payments for purses as income. In addition, the response said that the IRS believed that NYRA could not deduct $347 million in expenses related to payments to simulcast sites, and that NYRA could not deduct $88.9 million in local real-estate taxes.

Last week, NYRA filed a reorganization plan with the bankruptcy court that would require the state to provide $75 million in debt relief to NYRA in exchange for taking title to Aqueduct, Belmont, and Saratoga, the three tracks NYRA operates under a franchise provided by the state. As part of the deal, NYRA would receive a 30-year extension to its franchise, which expires at the end of this year.

Rosen wrote that NYRA needs the bankruptcy court to recognize the objections to the IRS claims so that the reorganization plan can proceed.

The IRS claim "by itself, far exceeds any amount NYRA could potentially satisfy," Rosen wrote.