Menard, Inc. - Page 7

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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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