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earnings go to, or for the benefit of, the natural objects of the
owners' bounty.
Because the earnings of the dealerships are diverted to the
dealer-related agencies, it may be questioned why the
Commissioner did not impute the agencies' earnings to the
dealerships. In Lucas v. Earl, 281 U.S. 111 (1930), the Supreme
Court held that income must be taxed to the person who earns it;
see Commissioner v. Culbertson, 337 U.S. 733, 739-740 (1949)
("the first principle of income taxation: that income must be
taxed to him who earns it"). However, the Commissioner did not
take that approach here.3 Instead, the Commissioner denied the
dealerships' deductions for commissions paid to their managers on
the theory that the commissions are an expense of the dealer-
related agencies.
The record is clear that the dealerships, not the insurance
agencies, in fact offer credit insurance, notwithstanding that
under Michigan law the dealerships are not permitted to receive
commissions for selling credit insurance and that in accord with
Michigan law the commissions are channeled to their related
insurance agencies. However, the issue presented to us by the
pleadings is not whether the commissions4 paid by the insurance
3 Conceivably, the Commissioner may have been deterred by
Commissioner v. First Security Bank, 405 U.S. 394 (1972).
4 Unfortunately, the word "commissions" is used in two
different contexts with potential for confusion: (1) Commissions
paid by the insurance companies for the sale of policies, which
(continued...)
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