- 15 -
427; sec. 1.183-2(b)(6), Income Tax Regs. A series of losses
during the initial stage of an activity is not necessarily an
indication that a taxpayer is not engaged in an 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 a profit objective.
Id.
Since the inception of the Amway activity in 1994,
petitioners never earned a profit therefrom but rather incurred
losses for 5 consecutive years. Indeed, petitioners’ aggregate
losses for the 5-year period from 1994 through 1998 amounted to
$49,564, thus averaging approximately $10,000 per year.
Further, no significant trend is discernible in the history
of petitioners’ losses. For 1994, 1995, 1996, and 1997,
petitioners incurred losses of $4,216, $12,805, and $16,295, and
$11,251 respectively. It bears mention that petitioners became
Amway distributors in the latter part of 1994; thus, the loss for
that year is based solely on 4 months of operation. Further,
although it is true that petitioners’ loss decreased in 1998 to
$4,997, it is also true that 1998 was the last year in which
petitioners actively pursued the Amway activity.
Second, we are not convinced that petitioners conducted the
Amway activity in a businesslike manner. Sec. 1.183-2(b)(1),
Page: Previous 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 NextLast modified: May 25, 2011