Menard, Inc. - Page 26

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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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