Academic journal article Journal of Accountancy

Equitable Recoupment a Timeless Remedy

Academic journal article Journal of Accountancy

Equitable Recoupment a Timeless Remedy

Article excerpt

An amendment to IRC [section] 6214(b) included in the Pension Protection Act of 2006 empowers the Tax Court to apply equitable recoupment to offset overpayments of hospital insurance taxes (the Medicare portion of FICA) against income tax deficiencies, according to the court's ruling in Menard Inc. v. Commissioner. Although the Tax Court lacks original jurisdiction over deficiency and overpayment claims for Medicare taxes imposed under IRC [section][section] 3101 and 3111, its power to use equitable recoupment is ancillary to its original jurisdiction over a deficiency redetermination.

In earlier rulings, the court agreed with the IRS that compensation paid by Menard Inc. to President and CEO John Menard, who was also an 89% shareholder, was unreasonable and actually a disguised dividend. The corporation owed an income tax deficiency to the extent that Mr. Menard's compensation was not deductible as an ordinary business expense. Mr. Menard was assessed personal deficiencies on reimbursed expenses that were found unreasonable and on constructive receipt of interest income on loans he made to the corporation.

The deficiency against the corporation totaled $5,720,334 plus a penalty of $188,295, and Mr. Menard was assessed a deficiency of $921,491 plus a penalty of $184,298. The taxpayers objected to the final computation of tax due, contending the corporation and Mr. Menard were each due a credit of $196,845, the amount of Medicare taxes each paid on the wage income now recharacterired as constructive dividends. By the time rulings were issued in Menard I (TC Memo 2004-207) and Menard II (TC Memo 2005-3), the statute of limitations for filing a refund claim on the overpaid Medicare taxes had expired with respect to both taxpayers. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.