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Petitioner contends that he did not perform any services for
Strategic during 1996, and that therefore there was no continuity
or regularity in the activity. Petitioner may not have performed
any sales or recruiting activities himself during 1996;
nonetheless, sales activities were performed by petitioner’s
downline representatives, and the income that petitioner received
was derived from those activities. As we understand Strategic’s
sales structure, the representatives performing the sales
activity were petitioner’s agents. Therefore, there was
continuity and regularity in sales from which petitioner
benefited, and the income petitioner received was derived from a
trade or business. See Abraham v. Commissioner, T.C. Memo. 1988-
412. Accordingly, we hold that petitioner is liable for self-
employment tax on the net income earned from Strategic.
We next consider whether petitioner is entitled to deduct
any additional $75 monthly fees allegedly paid for the
collector’s phone card. Section 162(a) allows a deduction for
the ordinary and necessary expenses paid or incurred during the
taxable year in carrying on a trade or business. It is not clear
from the record whether this fee was mandatory to maintain the
distributorship. The terms of the agreement specifically state
that petitioner is not required to purchase Strategic’s products
after the initial purchase of the startup sales kit. Petitioner
has not established that the collector’s phone card fee was an
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