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result of these adjustments, petitioners' remaining itemized
deductions for each of the years in question were less than the
standard deduction allowable under section 63(c); consequently,
respondent allowed petitioners the standard deduction for each
year. At trial, petitioners agreed that the disallowed
deductions claimed on their returns exceeded the actual amounts
they had incurred for contributions and miscellaneous expenses
and further agreed that the actual amounts they had incurred in
these two categories together with the other allowed deductions
would total less than the standard deduction for each year.
Petitioners, therefore, conceded respondent's adjustments to
their itemized deductions for the 3 years in question.
Petitioners were both employed in the years at issue at the
Isleta Casino and Resort near Albuquerque, New Mexico. In
addition, only for the year 1999, petitioners were engaged in a
trade or business activity that they described as a multilevel
marketing activity involving sales of a health drink. The
activity was discontinued after 1 year.
The first issue addresses petitioners' multilevel sales
activity. On their 1999 Federal income tax return, petitioners
reported income and deducted expenses relating to this activity
on a Schedule C, Profit or Loss From Business, as follows:
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