Menard, 68, who started the home improvement retail chain, is considered Wisconsin’s richest person, worth $7.3 billion in 2007, according to Forbes magazine.
The court in Washington, D.C., ruled late Tuesday, modifying a 2005 decision in which it sided with the Internal Revenue Service. The IRS claims the company and Menard owe back taxes and penalties because the company paid him too much in 1998.
Judge L. Paige Marvel ruled that of the $20.6 million Menard received that year as the home improvement chain’s chief executive officer, only $7 million qualified as a salary and the rest was a dividend.
She compared Menard’s salary with those of executives running similar companies, such as Lowe’s Cos. and Home Depot Inc.
Marvel also ruled that $1.6 million that Menard Inc. paid to the Team Menard Inc. auto racing organization in 1998 was really a dividend paid to John Menard. Menard Inc. had argued that! the $1.6 million should be a deductible business expense for marketing.
Unlike salaries and other business expenses, dividends are not deductible. For that reason, Menard Inc. owed an additional $5.7 million in back taxes, plus a penalty, Marvel said. Menard himself owed more than $1 million in back taxes and a penalty, the court said.
In later filings, Menard said he and his company should get credit for a 1.45 percent Medicare tax levied on all salaries because it had been paid on the money Marvel had since decreed a dividend.
Marvel agreed Tuesday, writing for the entire Tax Court. But she said the company owes taxes on the deduction it took for paying the Medicare tax. The difference is just under $200,000 in the company’s favor, according to Marvel’s decision. Menard will also get a similar deduction in the amount he owes, the court ruled.
Menard and the IRS are involved in similar disputes for five other tax! years. But those cases are not expected to be settled until t! he 1998 case is.
Tax Court cases can be appealed through the federal court system.
Robert E. Dallman, the Milwaukee lawyer representing Menard and the company, said he had no comment on Thursday.
Menard Inc. has more than 220 stores in 11 Midwestern states.
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Source: http://www.chippewa.com/articles/2008/02/21/news/752l.txt
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