James R. and Janet M. Landrum - Page 12

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          petitioners (at the so-called emerald level) and sometimes would            
          work with them.  Mr. Landrum explained that his friend and upline           
          adviser told him he would have to spend $500 per month on                   
          inspirational and instructive tapes and materials, for                      
          approximately 3 months, and then he could expect to gross $500 to           
          $1,000 or more monthly from Amway.  From this advice, what they             
          read in Amway literature, and what they heard at Amway seminars,            
          petitioners say that when they started a fourth time in 1995 they           
          expected to start making a profit in 90 days.  Despite mounting             
          losses, petitioners continued their Amway activity for more than            
          2 years beyond the 90-day trial period, long after it was clear             
          that the activity was not viable.  The regulations provide that             
          “where losses continue to be sustained beyond the period which              
          customarily is necessary to bring the operation to profitable               
          status such continued losses, if not explainable, as due to                 
          customary business risks or reverses, may be indicative that the            
          activity is not being engaged in for profit”.  Sec. 1.183-                  
          2(b)(6), Income Tax Regs.                                                   
               The exact date when petitioners commenced their fourth                 
          effort at Amway is unclear, but petitioners’ own testimony                  
          establishes that it was in 1995.  Since petitioners might have              
          explained the starting date and failed to do so, we conclude that           
          the entire 90-day starting period that petitioners mention took             

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