James R. and Janet M. Landrum - Page 14

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          Under the Amway system, the upline distributor’s income depends             
          on the downline person’s sales, so the upline person’s interest             
          is to keep as many people as possible in his organization without           
          regard to profitability.  Nissley v. Commissioner, T.C. Memo.               
               The amount of profits in relation to the amount of losses              
          incurred, and in relation to the amount of the taxpayer’s                   
          investment and the value of the assets used in the activity, also           
          are relevant in determining the taxpayer’s intent.  Sec. 1.183-             
          2(b)(7), Income Tax Regs.  Petitioners’ gross receipts of $150              
          and $84.63 in 1996 and 1997, respectively, were trivial in                  
          relation to their total claimed expenses of $11,902 and                     
          $15,781.39, respectively.  The magnitude of these discrepancies             
          is an indication that petitioners did not have the requisite                
          profit objective.  See, e.g., Burger v. Commissioner, T.C. Memo.            
          1985-523, affd. 809 F.2d 355 (7th Cir. 1987).                               
               We do not question that petitioners spent some time and                
          money in their Amway activity.  But petitioners’ evidence as to             
          the extent of these efforts and expenditures is questionable and            
          exaggerated.  The claims to mileage exceed the distances to some            
          of their claimed destinations.  Petitioners presented numerous              
          receipts for expenditures for Amway tools, but there are no                 
          checks to substantiate the payments.  The upline sponsors,                  

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