IRS REFORMS CONTRACTING

Washington, D.C. - In the wake of the Internal Revenue Service's decision not to renew contracts with two private debt collection agencies, a new report from the Treasury Department's Inspector General for Tax Administration reviewed the IRS's contracting practices and found that its current practices might be preventing it from using the most advantageous contracting methods.

"While the contract types we reviewed were not improper, these types of contracts present a greater risk of the IRS paying more for contracts than necessary," said TIGTA Inspector General J. Russell George.

The report recommended that the IRS's program offices work more closely with the Office of Procurement during acquisition planning to ensure selection of the most appropriate contract type. TIGTA also said that the IRS should document its justification for selecting a cost-reimbursement contract, and program officers should routinely review contracts prior to exercising their option years or recompeting contracts to consider less risky contract types.

MENARD RULING REVERSED

Chicago - A long-standing decision against building supplies retailer Menard, in which $20 million in compensation to its founder and CEO was ruled a dividend and therefore non-deductible, has been reversed by the Seventh Circuit Court.

In 1998, his bonus yielded founder and controlling shareholder John Menard more than $17 million. His total compensation for the year exceeded $20 million. The Tax Court later ruled that any compensation paid Menard in 1998 in excess of $7.1 million was excessive, based in part on comparisons with the compensation of CEOs at competing companies.

The Seventh Circuit reversed, holding that the Tax Court committed what it termed a "clear error." Although the Tax Court thought it suspicious that the board of directors that approved the 5 percent bonus in 1998 was controlled by Menard, the Circuit Court noted that it could hardly be otherwise, since he is the only shareholder who is entitled to vote for members of the board of directors and owns all the voting shares in the company.

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