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Petitioners resided in Aloha, Oregon, at the time their petition
was filed.
Background
Petitioner Bryan Brennan became an Amway distributor in
1987. Amway produces various household products that it sells
through direct marketing efforts of distributors such as peti-
tioner. Distributors purchase products and receive bonuses from
Amway, based on the volume of Amway products sold by them.
Distributors also recruit other people to be Amway distributors
(downstream distributors). Amway distributors earn additional
bonuses from Amway, based on the sales volume of the products
sold by their downstream distributors.
By a statutory notice of deficiency dated September 1, 1995,
respondent determined deficiencies in petitioners' Federal income
taxes of $7,442 for the taxable year 1992 and $16,900 for the
taxable year 1993. Respondent disallowed deductions related to
petitioners' Schedule C Amway distributorship because respondent
determined that the Amway distributorship was not a business
operated for profit. In the alternative, respondent determined
that petitioners had failed to substantiate a few of their
Schedule C business deductions.
Petitioners filed a petition in this Court on November 20,
1995. By order dated January 16, 1996, the case was calendared
1(...continued)
indicated.
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