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underlying income and expense data, reports, and other business
records and their failure to reconstruct the income and expense
reports indicate a disregard of businesslike activity and profit.
Id.
Petitioners asserted that they changed the way they did
business (i.e., marketing) in 1996, but petitioners have offered
no factual support for this assertion. Continuing to operate
such an unprofitable activity, even after a change in strategy
that was unsuccessful, indicates a lack of profit objective.
Filios v. Commissioner, 224 F.3d at 24; sec. 1.183-2(b)(1),
Income Tax Regs.
Petitioner testified that “if products don’t move, profit
doesn’t move”; yet petitioners failed to provide any indication
of how they attempted to sell the Amway products. Petitioners
did not present any facts or business records concerning sales of
products to customers such as customer lists or distribution
order forms. Rather, petitioners’ goals list and testimony
indicate that they focused on establishing a downline chain of
distributors more than they focused on selling products.
Moreover, petitioners claimed that they had approximately 30
downline distributors, but they neither produced a list of these
downline distributors nor had any of them testify. We are not
convinced that petitioners focused on selling Amway products and
that they focused on earning a profit.
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Last modified: May 25, 2011