Kenneth C. & Becky J. Theisen - Page 4

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          least up to the date of trial.  During the years in issue,                  
          petitioner claimed that he participated in the Amway activity on            
          an average of 15-20 hours per week.  Mrs. Theisen claimed that              
          she participated in the Amway activity with her husband on an               
          average of 4 hours per week.  She stated that her primary                   
          function was doing the paperwork and visiting with wives of                 
          prospective distributors of Amway products.                                 
               Amway is a supplier of various household products.  It sells           
          these products via marketing through distributors, such as                  
          petitioners.  Distributors purchase the products for personal               
          use, as well as for resale to customers and downline distributors           
          (also known as "downliners").  Distributors are encouraged to               
          recruit others to become downline distributors.  The Amway system           
          is based on a pyramid system whereby a distributor's direct and             
          indirect sales are rewarded with bonuses.                                   
               Petitioners filed joint Federal income tax returns for 1992            
          and 1993.  On Schedules C of these returns, petitioners claimed             
          net losses in the amounts of $11,074 and $14,881, for 1992 and              
          1993, respectively, from Theisen Enterprises.                               
               Theisen Enterprises is petitioners' sole proprietorship.               
          Petitioners claim that Theisen Enterprises is engaged in the                
          business of selling Amway products.  On Schedule C of each                  
          return, line B, "principal business code", petitioners listed               
          "3012", which number represents "Selling door to door, by                   

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