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2001, respondent sent to Menards a notice of deficiency with
respect to its TYE 1998. Menards timely petitioned this Court
seeking a redetermination of the deficiency.
Mr. Menard is a cash basis taxpayer with a taxable year
ending December 31. Between March 30 and April 15, 1999, Mr.
Menard timely filed Form 1040, U.S. Individual Income Tax Return,
for 1998. On October 12, 2001, respondent sent a separate notice
of deficiency to Mr. Menard with respect to 1998. Mr. Menard
timely petitioned this Court seeking a redetermination of the
deficiency.
The two cases were consolidated for trial, briefing, and
opinion. Following a trial and the submission of posttrial
briefs, we issued our opinion in Menard I holding, among other
things, that Menards was not entitled to a business expense
deduction for a significant portion of the compensation it paid
to Mr. Menard for 1998 because the compensation was unreasonable,
was not paid entirely for personal services, and was properly
characterized as a disguised dividend to Mr. Menard. Separately,
we sustained respondent’s determination that Mr. Menard was
liable for an income tax deficiency to the extent that Menards’s
payment of certain expenses on Mr. Menard’s behalf was
unreasonable and constituted a constructive dividend to Mr.
Menard.
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