- 11 -
weeks before trial. If petitioners had accurate books and
records and reviewed the returns before signing them under
penalties of perjury, he, and then he and his wife, would have
had to discover such gross omissions.
The parties stipulated that petitioners realized gross sales
income of $43,575 in 1993, $66,276 in 1994, and $76,526 in 1995.
Although Mr. Ogden and then petitioners did not report these
gross sales on their returns, they did report them to Amway for
bonus purposes. After reducing the gross sales income by the
cost of the goods sold, the gross income of Mr. Ogden and then
petitioners was $1,082 in 1993, $2,041 in 1994, and $5,290 in
1995. The net losses of Mr. Ogden and then petitioners were
$20,250 in 1993, $19,652 in 1994, and $19,692 in 1995.
A series of losses during the initial stage of an activity
is not necessarily an indication that petitioners are not engaged
in the activity for profit. Sec. 1.183-2(b)(6), Income Tax Regs.
However, if such losses continue beyond the period in which it is
customary for an activity to become profitable, then the losses,
if they are unexplainable, may be indicative of a lack of intent
to profit. Id. A series of years in which net income was
realized would be strong evidence that the activity is for
profit. Id. Petitioners had no such years in which net income
was realized.
When we consider the financial status of the taxpayer,
section 1.183-2(b)(8), Income Tax Regs, we find that petitioners'
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