Menard, Inc. - Page 65

                                       - 62 -                                         
          lump sum rather than as Mr. Menard performed services.  Perhaps             
          more problematic, this lump-sum payment was “practically no                 
          different from a dividend”:  a profit-based, yearend bonus paid             
          to the majority shareholder-officer.53  See RAPCO, Inc. v.                  
          Commissioner, 85 F.3d 950, 954 n.2 (2d Cir. 1996), affg. T.C.               
          Memo. 1995-128.                                                             
               We also find significant Mr. Menard’s agreement to reimburse           
          Menards for any portion of the 5-percent bonus disallowed as a              
          deduction.  Such reimbursement clauses suggest that the taxpayer            
          had preexisting knowledge that the compensation may not satisfy             
          section 162(a)(1) and lead to the inference that the compensation           
          was intended, in part, as a disguised dividend.  See Charles                
          Schneider & Co. v. Commissioner, 500 F.2d at 155; Saia Elec.,               
          Inc. v. Commissioner, T.C. Memo. 1974-290, affd. without                    
          published opinion 536 F.2d 388 (5th Cir. 1976).                             
               Petitioners assert that Menards intended Mr. Menard’s salary           
          and the 5-percent bonus as compensation purely for his services.            


               52(...continued)                                                       
          of dividends paid by * * * [the taxpayer]” did not constitute               
          evidence that the CEO’s compensation was unreasonable for                   
          purposes of the first prong of sec. 162(a)(1).  However, the                
          Court of Appeals for the Seventh Circuit did not also reject this           
          factor for purposes of determining whether the compensation was             
          intended for personal services actually rendered.  See Exacto               
          Spring Corp. v. Commissioner, supra at 839; see also sec.                   
          162(a)(1).                                                                  
               53We note that Mr. Menard was also one of the three                    
          directors who approved the 5-percent bonus.                                 




Page:  Previous  52  53  54  55  56  57  58  59  60  61  62  63  64  65  66  67  68  69  70  71  Next

Last modified: May 25, 2011