Kenneth C. & Becky J. Theisen - Page 10

                                         - 10 -                                       

               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).             

Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  12  Next

Last modified: May 25, 2011