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to a formula and was subject to a reimbursement agreement that
required Mr. Menard to reimburse Menards if any portion of the
bonus was disallowed as a deduction. For TYE 1998, the formula
resulted in a bonus that, when added to Mr. Menard’s other
compensation, substantially exceeded the compensation paid to
CEOs in comparable companies.
Petitioners timely filed a motion for reconsideration of our
opinion. In the motion, petitioners (1) challenged our
evidentiary ruling excluding, as irrelevant, the portion of
Exhibit 17-J that summarized Menards’s officer compensation for
taxable years ended before 1991 and (2) challenged our
application of the “purely for services” prong of the section 162
test for the deductibility of compensation. In support of their
motion, petitioners argued, with respect to Exhibit 17-J, that
“other tax years may be relevant to the years in issue by showing
a pattern of behavior.” With respect to the “purely for
services” prong of the section 162 test, petitioners argued that
the holding of the Court of Appeals for the Seventh Circuit
“requires a finding of bad faith by the taxpayer and there has
been no bad faith in this case.”
Discussion
I. Admissibility of Excluded Portion of Exhibit 17-J
Petitioners argue that information regarding Menards’s
officer compensation for taxable years ended before 1991 may be
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