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of making a profit.5 However, it is clear from petitioners'
return, and petitioner's testimony, that without the royalty
payments, petitioner had no honest objective of making a profit
from this activity. Thus, we conclude that recruiting and
developing distributors is an integral part of petitioner's
business. See Commissioner v. Groetzinger, 480 U.S. 23, 35
(1987).
Petitioner also argues that as he has hundreds of down-line
distributors who he has never met and who sell products over a
broad geographical area, the sales made by his breakaway
distributors are earned income to the companies, not to him.
With respect to the payments from the lower-level distributors,
we can see no distinguishable difference between this case and
5 At trial, petitioner gave the following testimony in
response to respondent's questions:
Q. And your primary purpose was for income or profit from
the whole--the whole operation; your sales and the down-line
distributor sales? That was your motive?
A. Well, it's a little bit leading, there, Counselor, but
basically--
Q. I'm entitled to lead.
A. Are you? We can lead around here, huh?
The Court: On cross-examination, you can lead.
A. Okay. Allright. But, yeah, well, obviously, you know,
my real motivation in life is to help people but to make a
profit as I do it is not against my principles.
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