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Petitioners' record-keeping is also not complete and
accurate. In light of his position as a revenue agent for the
Service, petitioner must have realized that the absence of gross
income would tend to indicate that the activity lacked any profit
motive. We believe that petitioner intentionally failed to
include the cost of motivational tapes in the calculation of
costs of goods sold in order to avoid disclosing a negative gross
income on the Schedule C for both years. Petitioner admitted
that if these purchases had been included in costs of goods sold,
petitioners would not have had any gross income for those years.
We agree with respondent that these purchases should have been
included in the costs of goods sold. Accordingly, we find that
petitioners did not have gross income in 1992 or 1993.
We have considered petitioners' other arguments and find
that they are without merit.
On this record, we find that petitioners did not have an
honest objective to make a profit in their Amway activity.
Petitioners operated this activity primarily because it allowed
them to purchase discounted merchandise for personal use, and it
enabled them to convert personal expenses to Schedule C
deductions. Section 262 disallows any deduction for personal,
living, or family expenses. Examination of their Schedules C for
both years shows that they were not entitled to claim any
deductions "otherwise allowable" pursuant to section 183(b)(1).
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