- 13 - 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. 2000-178. 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,Page: Previous 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Next
Last modified: May 25, 2011