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claimed on Schedule C and allowed by respondent in the notice of
deficiency.1
Some of the facts have been stipulated and are so found.
The written stipulation of facts and supplemental stipulation of
facts, with the attached exhibits, and the oral stipulation are
incorporated herein by this reference. At the time the petition
was filed, petitioner resided in Los Angeles, California.
During the year at issue, petitioner became involved with
Strategic, a company which sells prepaid phone cards. Strategic
operates a multilevel marketing arrangement wherein a sponsor
recruits downline distributors, who then recruit additional
representatives beneath them. The upline distributors earn
commissions on the sales generated by those below them. This is
typically known as a “pyramid” system.
On February 7, 1996, petitioner signed an “Independent
Representative Application and Agreement” (agreement) with
Strategic. In signing the agreement, petitioner became eligible
to sell and distribute Strategic’s goods and services and to
receive commissions in connection with such sales. Petitioner
also agreed that he “is an independent contractor not an agent,
employee or franchisee of the Company” and that he will not be
1 At trial, counsel for respondent questioned the
substantiation of expenses petitioner claimed on his Schedule C.
We note that in the notice of deficiency all of petitioner’s
claimed expenses were allowed, and we do not examine the
substantiation of those items.
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