Menard, Inc. - Page 24




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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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