Dealership faces hefty tax bill over owner's pay

Deduction dispute

The case: IRS adds $199,000
to Illinois dealership’s tax bill for allegedly overpaying owner.

Where it stands: Dealership awaits IRS response to its petition asking tax court
to overturn ruling denying deductions.

WASHINGTON — Hard work and long hours paid off for Maple Leaf Lincoln-Mercury Inc., with increased sales — and a $199,000 tax bill.

That’s how much the Internal Revenue Service demanded that the Geneseo, Ill., dealership pay in additional taxes for allegedly overpaying Jay DeVrieze, owner and president, by $561,000 in 1996-97.

According to tax experts, the IRS often denies deductions for what it determines to be excessive executive compensation. The action is designed to prevent companies from using deductions from such overpayments to reduce their taxable income by dropping them into lower tax brackets.

But Maple Leaf disagrees that DeVrieze was overcompensated. The Illinois-Iowa Quad City area dealership filed a petition asking the U.S. Tax Court here to overturn the IRS ruling denying the firm deductions for the alleged overpayments.

“Jay got the dealership built up from nothing,” said James Mezvinsky, a Davenport, Iowa, tax attorney for the company. “He has run it, managed it. He has been the go-to guy. He’s won all kinds of awards from Ford and Lincoln Mercury.”

The company’s petition said DeVrieze, a 30-year auto industry veteran, worked 75 hours a week performing multifaceted duties from CEO and chairman to marketing and human resource director.

Tax trial possible

“DeVrieze’s hard work, ideas and programs have resulted in the petitioner’s overwhelming success and growth over a long period,” the petition said.

Mezvinsky said in a telephone interview Oct. 30, that DeVrieze and his father, Gordon, bought the dealership in 1982, when it was on the financial ropes and Ford Motor Co. was contemplating closing it. Gordon DeVrieze since has retired.

“They bought a little dealership and built it up to what it is today,” Mezvinsky said. “He (Jay DeVrieze) works very hard, very diligently. He’s taken quite a lot of responsibility in the agency. We’re quite hopeful we can convince the IRS that that’s the case.”

That chance will come when the IRS answers Maple Leaf’s petition. The answer is due within 90 days of the Oct. 9 filing of the petition. Once the answer is filed, the two sides will attempt to negotiate a settlement. If they fail, the case could go to trial before a tax court judge.

“It’s very early in the case,” Mezvinsky said. “We think we’re going to prevail.”

An IRS spokesman said the agency does not comment on pending tax cases.

IRS limits deductions

The July 10 IRS notice of deficiency ruled that the dealership could deduct only $498,926 of DeVrieze’s $793,200 compensation for 1996, and $477,020 of the $743,687 the dealership paid him the following year.

But Joe Lescota, chairman of the auto department at Northwood University in Midland, Mich., said DeVrieze’s pay does not appear to be out of line for those two years.

“You have to remember you had really a couple of fantastic (sales) years,” he said. Lescota also said the dealership may be making up for lower pay DeVrieze received in earlier, leaner years.

The petition said that when DeVrieze bought the dealership, “it ranked last in its region, and Lincoln Mercury questioned whether the dealership was viable and considered shutting down the dealership.” The then-unidentified owner was asked to sign a waiver allowing the manufacturer to close the dealership if it did not post better sales numbers, the petition said.

With Jay DeVrieze at the helm, the petition said, Maple Leaf became “the top dealership in its zone and near the top of the entire Midwest region for Lincoln-Mercury in 1996 and 1997.” The petition added, “DeVrieze is active outside the dealership in community and charitable activities in an effort to further improve petitioner’s status in the community, and, therefore, its overall performance.”

Nancy Carollo, a spokeswoman for Lincoln Mercury, said the dealership sales appear to be good but would not characterize them otherwise. She said Lincoln Mercury does not rank dealerships on sales.

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