Churchill Downs, Inc. v. Commissioner

307 F.3d 423 (6th Cir. 2002)

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Nature of the Case

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Facts

P owns and operates the Churchill Downs racetrack in Louisville and three other race tracks. Ps' biggest race is the Kentucky Derby, held each year on the first Saturday in May. Churchill Downs hosts the following events in connection with the race: (1) a 'Sport of Kings' gala, (2) a brunch following the post position drawing for the race, (3) a week-long hospitality tent offering coffee, juice, and donuts to the press, and (4) the Kentucky Derby Winner's Party. The Sport of Kings Gala includes a press reception/cocktail party, dinner, and entertainment. P also hosts another race, the Breeders' Cup, at the Churchill Downs racetrack. Its contract with Breeders' Cup Limited ('BCL') obligated it to host certain promotional events designed to enhance the significance of the Breeders' Cup races as a national and international horse racing event. These events included: (1) a press reception cocktail party and dinner, (2) a brunch, and (3) a press breakfast. P also hosted a number of miscellaneous dinners, receptions, cocktail parties and other events indirectly associated with one or both of these races. P deducted the full amount of these Kentucky Derby and Breeders' Cup expenses on its 1994 and 1995 federal income tax returns as 'ordinary and necessary business expenses' pursuant to I.R.C. § 162, 26 U.S.C. § 162(a). D rejected this treatment and concluded that P was entitled to deduct only 50% of these expenses. The Tax Court agreed with the D, and P appealed.