Churchill Downs Inc. is not entitled to a 100% tax deduction of expenses related to parties and dinners it hosted during the Kentucky Derby (G1) and Breeders' Cup events in the 1994 and '95 seasons, the 6th United States Circuit Court of Appeals in Cincinnati ruled on Tuesday.Instead, Churchill may deduct only 50% of the expenses, which means the track would have to pay taxes on an additional $184,692.50, as Derby parties cost about $131,000 in 1994 and $93,000 in '95 while the 1994 Breeders' Cup parties and meals for the news media cost $145,385.

The Internal Revenue Service's initial ruling was that the above expenses did qualify as business expenses but because they were associated with entertainment, Churchill was entitled to a 50% reduction, not 100%.

Churchill countered the IRS ruling by arguing that the various parties were business related and meant to promote racing at the track, partly by generating publicity. In its ruling against Churchill, the appeals court disagreed.

"The events [were not] open to the gaming public that attends Churchill races and wagers on them," Judge Eugene Siler Jr. wrote in the three-judge appeal panel's ruling. "Regardless of whether Churchill incurred these expenses in order to promote an upcoming event open to the public, the goods and services purchased with these expenditures were not 'made available' to the general public, but rather only to a few invited guests."