Menard, Inc. - Page 4




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          amount of so-called hospital insurance taxes that they overpaid             
          pursuant to sections 3101(b) and 3111(b) on the portion of                  
          petitioner John R. Menard’s compensation recharacterized in                 
          Menard I as a disguised dividend.                                           
                                     Background                                       
               We adopt the findings of fact set forth in Menard I.  For              
          convenience and clarity, we repeat below the facts necessary for            
          the disposition of this matter, and we supplement those findings            
          with additional facts as appropriate.                                       
               Menard, Inc. (Menards), was incorporated in Wisconsin in               
          1962 and is engaged primarily in the retail sale of hardware,               
          building supplies, paint, garden equipment, and similar items.              
          As of the trial date, Menards had approximately 160 stores in               
          nine Midwestern States and was one of the nation’s top retail               
          home improvement chains.                                                    
               John R. Menard (Mr. Menard) served as president and chief              
          executive officer of Menards and has been a controlling                     
          shareholder of Menards since its incorporation.  During the                 
          period in question, Mr. Menard owned approximately 89 percent of            
          Menards’s voting and nonvoting stock.                                       
               Menards is an accrual basis taxpayer and has a fiscal year             
          ending January 31 for tax and financial reporting purposes.  On             
          October 15, 1998, Menards timely filed Form 1120, U.S.                      
          Corporation Income Tax Return, for TYE 1998.  On October 12,                







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