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on the installment agreement requires its explanation by a
salesman or a manager. And it seems clear that a dealership
offering credit insurance would take such service into account in
some manner in compensating an employee for explaining to
customers the nature of the insurance coverage and calculating
its cost for customers, as well as arranging for the financing of
the very cost of the credit insurance itself.
The expenses are also "necessary". As we have noted,
virtually all motor vehicle dealerships offer credit insurance.
And, as we have also noted, the installment sale purchase
agreements offer the option for credit insurance. To keep up
with their competitors, and to offer one stop service for
financing, the dealerships must have employees who can explain
the function of credit insurance to customers and who are able to
calculate the premiums. Paying commissions to the managers is an
"appropriate and helpful" step in achieving those objectives.
Cf. Nichols Loan Corp. v. Commissioner, 321 F.2d 905 (7th Cir.
1963), revg. T.C. Memo. 1962-149.
The Government relies on an artificial distinction between
the dealerships and the related agencies. According to the
Government, the compensation (or commissions) paid to the
managers constitutes an expense of the dealer-related agencies,
not of the dealerships. Accordingly, the argument continues, the
dealerships are not entitled to a deduction unless they can show
that compensating the managers results in a direct and tangible
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