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operation of race cars from February 1, 1997, to January 31, 1999
(the TMI expenses), but had no written agreement with TMI
regarding the payment and/or reimbursement of the TMI expenses.
For TYE 1998 and calendar year 1998, Menards paid TMI expenses,
including salaries,25 of $6,563,548 and $5,703,251, respectively.
TMI did not record in its books and records, or report on its tax
return for 1998, any income as received from Menards for
sponsorship fees. Although Menards claimed deductions for the
TMI expenses on its tax returns for TYE 1998 and TYE 1999,26
Menards did not identify the TMI expenses as sponsorship fees or
advertising expenses.
In addition, Menards did not create or maintain separate
accounts in its books and records identifying the TMI expenses as
sponsorship fees or advertising expenses. Instead, Menards
recorded the TMI expenses in 10 different accounts of Menards’s
corporate division according to expense type.27 For example,
Menards recorded amounts spent on car parts under “Repairs
25For 1997 and 1998, Menards paid TMI employee salaries of
approximately $1,830,000 and $1,850,000, respectively. The two
amounts do not include pension, profit-sharing, or health
insurance costs.
26TMI did not claim the TMI expenses as deductions on its
tax returns for the relevant periods.
27The 10 corporate accounts had the following headings:
Repairs Vehicles, Minor Tools, Professional Fees, Travel,
Vehicles and Equipment, Gas and Oil, Advertising, Miscellaneous,
Legal, and Rental.
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