Menard wins a round in tax court

The U.S. Tax Court in Washington, D.C., has ruled that John Menard, owner of Menard’s home improvement chain, still owes the federal government $5.7 million in back taxes -- minus approximately $200,000.

According to the Associated Press and other news outlets, U.S. Tax Court Judge Paige Marvel reduced Menard’s tax burden by modifying one of her earlier court rulings in the executive’s long-running battle with the Internal Revenue Service.

In 2005, the IRS prevailed in its claim that Menard had been paid too high a salary in 1998, when he made $20.6 million as the company’s CEO. At the time, Judge Marvel ruled that only $7 million of that money should count as salary. She arrived at that figure by comparing Menard’s salary to that of the chief executives of Home Depot and Lowe’s, the number one and two home improvement retailers. Menard’s is the third largest retailer in the home channel.

The balance of $20.6 million was considered a dividend, which is not deductible like salaries and other business expenses. This makes Menard subject to an additional $5.9 million in back taxes plus penalties. Since then, Menard’s attorneys have argued that he and his company should get credit for a Medicare tax paid on salaries, and Judge Marvel agreed. After some adjustments, she cut Menard’s tax burden by $200,000 in a Feb. 21 ruling.

But Menard’s battle with the IRS is far from over. The founder of the Menards chain of more than 209 Midwestern stores still has to settle tax cases for five other years involving the same issues. Much depends on the resolution of the 1998 case, which can be appealed through the federal tax court system.

In 2007, Forbes magazine named John Menard as the 44th richest person in the United States, with assets estimated at $7.3 billion.