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Menards’s performance to the comparison group companies’
performances to determine how the marketplace valued services
comparable to those provided to Menards by Mr. Menard during TYE
1998 and to decide what portion of Mr. Menard’s compensation was
reasonable within the marketplace. See Exacto Spring Corp. v.
Commissioner, 196 F.3d at 838; sec. 1.162-7(b)(3), Income Tax
Regs.
Although comparisons to Kohl’s, Staples, and Target are
helpful to an extent, we can more accurately gauge a reasonable
amount of compensation for Mr. Menard by focusing on how Menards
compared to its direct competitors in home improvement retailing,
Home Depot and Lowe’s, during TYE 1998. In his report, Dr.
Hakala described Home Depot and Lowe’s as “directly comparable”
to Menards. Similarly, while contrasting Menards’s performance
during TYE 1998 with Home Depot’s and Lowe’s performances,
petitioners characterized the two companies as Menards’s “closest
competitors”. In TYE 1998, Home Depot, Lowe’s, and Menards had
gross revenue, revenue growth, and net income as follows:
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