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despite initial unprofitability. Sec. 1.183-2(b)(5), Income Tax
Regs. No evidence was produced showing that either of
petitioners had ever engaged in activities similar to Amway, or
that either had ever been involved with making other activities
profitable. We find that this factor favors respondent.
6. & 7. Taxpayer’s History of Income or Losses and the
Amount of Occasional Profit, If Any
A profit objective is strongly indicated where the taxpayer
has experienced a series of profitable years. Sec. 1.183-
2(b)(6), Income Tax Regs. A series of losses incurred during the
startup stage of an activity does not necessarily indicate the
lack of a profit objective, but it may so indicate if the losses
continue beyond the customary startup period and are not
otherwise explainable as due to customary business risks. Id.
Petitioners sustained substantial losses in their distributorship
activities for at least six consecutive years,4 no profits were
ever earned from the activity, and there is no indication that
Amway distributorships which may eventually become profitable
sustain such substantial and prolonged losses. Furthermore,
petitioner husband’s testimony indicates that the income earned
from the distributorship was directly related to certain major
expenses, implying a correlation between income levels and
expense levels which would in effect always preclude the
4The profits and/or losses from the activity in the years
1989 through 1991 and after 1997 are not in the record.
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