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The issue is whether, on the facts set forth hereinafter,
commissions paid to a car dealership's finance and insurance
manager for selling credit insurance are ordinary and necessary
business expenses of the dealership deductible under section
162(a)1. The case was submitted on the basis of a stipulation of
facts.
Petitioners are Timothy M. and Helen L. Petty and Berger
Chevrolet, Inc. (Berger). The Pettys, husband and wife, lived in
Ada, Michigan, when their petition in this case was filed. They
filed joint returns for the years involved. Berger was located
in Grand Rapids, Michigan, when its petition in this case was
filed.
Timothy Petty is the sole shareholder of Classic Chevrolet,
Inc. (Classic), an S corporation. The Petty deficiency for 1987
is the result of the disallowance of deductions for commissions
paid by Classic to its employees in 1989 and 1990.2 The Berger
deficiency is the result of the disallowance of deductions for
commissions paid in 1990. Unless otherwise indicated, the
following events occurred in 1989 and 1990 in the case of
Classic, and 1990 in the case of Berger.
1 Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years in issue.
2 As a result of the disallowances, Classic's net operating
losses for 1989 and 1990 were reduced. Consequently, the net
operating loss carryback to 1987 was correspondingly adjusted,
resulting in the deficiency.
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