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correct, and petitioners bear the burden of proving that
respondent's determination is erroneous. Rule 142(a); Welch v.
Helvering, 290 U.S. 111, 115 (1933).
Issue 1. Whether the Amounts Reported by Petitioners as
Royalties Are Gross Receipts From Petitioner's
Trade or Business
The instant case is almost identical factually to Abraham v.
Commissioner, T.C. Memo. 1988-412. In holding that the payments3
to the taxpayer in Abraham for sales made by his down-line
distributors were self-employment income, this Court focused on
the activities the taxpayer performed in his business. We found
that the taxpayer, realizing that his income was dependent upon
the sales activities of his distributors, devoted substantial
time and energy to training and developing these individuals.
All of the taxpayer's activities, which included providing the
distributors with motivation and encouragement, imparting to them
his skills, knowledge, and experience with the products, and
counseling them on selecting successful recruits, were conducted
in an attempt to increase the productivity of the distributors at
all levels. Therefore, the fact that the taxpayer had no
personal contact with the down-line distributors at the second
and lower levels made no difference; he devoted his time with the
3 In Abraham v. Commissioner, T.C. Memo. 1988-412, the
multilevel-marketing companies used the terms "bonus" or
"commission payments" to describe the commissions they paid the
taxpayer for the sales made by his down-line distributors.
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