Joe Guadagno and Susan Beth Rishel Guadagno - Page 6

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          bonus schedule and corresponds to the distributor’s monthly point           
          value.4  This percentage ranges from 3 to 25 percent and                    
          increases in steps as a function of point value.                            
               Petitioners’ Amway activities may be summarized as follows.            
          Petitioners were recruited by an upline distributor of Amway                
          products in 1995.  They had no prior experience with Amway and no           
          prior experience running a business.  Before becoming Amway                 
          distributors, petitioners received advice from other Amway                  
          distributors but did not solicit business advice from those                 
          outside the Amway community; nor did petitioners seek independent           
          business advice during the course of their affiliation with                 
               During the years in issue, petitioners spent little time or            
          effort attempting to sell Amway products; instead they intended             
          to develop a network of distributors.  Consequently, their                  
          potential for profit depended almost entirely on Amway’s                    
          performance bonus program and the sales efforts of their downline           
          distributors.  Recruiting productive downline distributors,                 
          therefore, was the key to petitioners’ profit potential.  In this           

               4 For example, assume that, in a given month, a distributor            
          accumulates a point value of 1,000 and a business volume of                 
          $2,500.  According to Amway’s performance bonus schedule, at a              
          point value of 1,000, the performance bonus equals 12 percent of            
          business volume.  Thus, in this example, the gross performance              
          bonus is $300 (i.e., $2,500 x 0.12).  To determine the                      
          distributor’s net performance bonus, this amount must be reduced            
          by the dollar amount of bonuses owed to downline distributors.              

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Last modified: May 25, 2011