Joe Guadagno and Susan Beth Rishel Guadagno - Page 13

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               Petitioners’ Amway activity has resulted in substantial                
          losses.  Losses that are incurred in the initial stages of an               
          activity do not necessarily suggest the absence of an honest                
          profit objective.  However, losses that continue without                    
          explanation beyond that period typically required for an activity           
          to become profitable may indicate the lack of a profit objective.           
          See Golanty v. Commissioner, supra at 427; Conner-Nissley v.                
          Commissioner, T.C. Memo. 2000-178; Ogden v. Commissioner, supra.            
          Despite year after year of losses, petitioners did not change               
          tactics to increase the likelihood of earning a profit.                     
               For the most part, the losses that petitioners incurred year           
          after year are attributable to automobile and travel expenses               
          (including the expenses incurred in attending various seminars).            
          Petitioners did not concentrate on selling Amway products to                
          customers, thereby eliminating sales as a potential source of               
          profit.  A substantial portion of the income earned from bonuses            
          they received each year was paid out to their downline                      
          distributors.  Other components of income were completely offset            
          by matching expenses for the same items.  Against the slim margin           
          for profit, petitioners haphazardly incurred significant                    
          expenditures for automobile and other travel expenses in order to           
          recruit downline distributors primarily from the ranks of family,           
          friends, and acquaintances, some of whom lived considerable                 

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