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Amway regarding their downliners. These reports summarized order
activity and bonus information. Petitioners maintained a
contemporaneous diary of meeting activities, but they did not
maintain periodic financial statements for the distributorship.
During 1996, petitioners constructed a building on their
residential property, a “pole barn”, which for a short period of
time was used in part for storage of Amway products. However, at
some point during the years in issue, petitioners no longer
needed to store products, and the building subsequently was used
for entirely unrelated purposes. On average, petitioners devoted
approximately 2 nights per week, and approximately 2 weekends per
month, to the Amway activity. Petitioners’ taxable wage and
salary income was as follows for each respective year:
1992 1993 1994 1995 1996 1997
$61,137 $65,980 $64,018 $65,500 $67,000 $72,403
Petitioners reported the following Amway-related gross
income and net losses on their joint Federal income tax returns
for taxable years 1992 through 1997:
1992 1993 1994 1995 1996 1997
Gross income $18,768 $11,968 $2,972 $2,888 $3,500 $10,431
Net loss (9,559) (25,724) (18,056) (18,392) (19,395)
(12,349)
In the notice of deficiency, which relates only to taxable years
1996 and 1997, respondent determined that the income petitioners
received from their Amway activity was not earned in connection
with an activity conducted for profit. Thus, respondent
determined that petitioners were required to report the Amway-
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