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Consequently, we need not discuss the individual elements in any
detail.
We are required, however, to address respondent’s contention
that Menards improperly computed its income tax liability in
connection with the offset of its share of the hospital tax.
Specifically, respondent asserts that, since Menards deducted its
share of the hospital tax on its income tax return for 1998,
Menards must first eliminate or back out that particular
deduction, then recompute its income tax liability in accordance
with the Court’s earlier opinions, and finally offset the
resulting income tax deficiency by the amount of the hospital tax
that it paid under section 3111(b).
Menards disagrees with respondent and cites section 1.461-
2(a)(1), Income Tax Regs., which provides the general rule that
if an asserted liability is contested, the taxpayer transfers
money to satisfy the asserted liability, and, if but for the
contest of the asserted liability, a deduction is otherwise
allowed with regard to the asserted liability, the deduction is
allowed for the taxable year of the transfer. In conjunction
with this provision, section 1.461-2(a)(3), Income Tax Regs.,
provides in pertinent part that the refund of a contested amount
is includable in gross income for the taxable year of receipt, or
for an earlier taxable year if properly accruable for such
earlier year. Although Menards relies on the regulation for the
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