Menard, Inc. - Page 2




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                    The Court also concluded that S was liable for an                 
               income tax deficiency to the extent MI’s payment of                    
               certain expenses was unreasonable in amount and                        
               constituted a constructive dividend to S and S                         
               constructively received interest income on loans he                    
               made to MI.                                                            
                    R filed computations for entry of decision                        
               pursuant to Rule 155, Tax Court Rules of Practice and                  
               Procedure.  S and MI objected to R’s computations                      
               because they did not reflect an offset against their                   
               income tax deficiencies equal to the amount of hospital                
               taxes that S and MI overpaid under secs. 3101(b) and                   
               3111(b), I.R.C., in respect of the portion of S’s                      
               compensation that the Court recharacterized as a                       
               disguised dividend.                                                    
                    After the submission of the computations and                      
               related objections, Congress passed the Pension                        
               Protection Act of 2006 (PPA), Pub. L. 109-280, sec.                    
               858, 120 Stat. 1020, which amended sec. 6214(b),                       
               I.R.C., to provide that the Tax Court may apply the                    
               doctrine of equitable recoupment, effective for any                    
               action or proceeding in the Court with respect to which                
               a decision has not become final as of Aug. 17, 2006.                   
               Sec. 6214(b), I.R.C., as amended by PPA sec. 858,                      
               provides that the Court has jurisdiction to apply the                  
               doctrine of equitable recoupment to the same extent                    
               that the doctrine is available in civil tax cases                      
               before the District Courts of the United States and the                
               U.S. Court of Federal Claims.                                          
                    Held:  Where, as here, the Court has original                     
               jurisdiction to redetermine a deficiency pursuant to                   
               sec. 6213(a), I.R.C., the Court may apply the equitable                
               recoupment doctrine even if the Court lacks subject                    
               matter jurisdiction over the type of tax to which the                  
               equitable recoupment claim is directed.                                
                    Held, further:  The requirements for establishing                 
               a claim of equitable recoupment are satisfied in this                  
               case, and S and MI are entitled to an offset against                   
               their income tax deficiencies equal to the hospital                    
               taxes that S and MI paid on the portion of S’s                         
               compensation that the Court recharacterized as a                       
               disguised dividend.                                                    








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