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to compete with other Amway affiliates for sales and recruits.
Petitioners’ lack of control over their downline distributors
hampered their ability to predict sales and, in turn, performance
bonuses. Their difficulty in predicting performance bonuses was
compounded by Amway’s practice of varying the point value it
assigned to a given product. Petitioners’ lack of control over
these key components of their distributorship caused any
predictions of performance bonuses that they might have made to
be, at best, uncertain.
Given their practice of selling Amway products at cost,
petitioners’ Amway distributorship could be profitable only if
their performance bonuses exceeded their expenses. In order for
this to occur, petitioners estimated that they would need to
achieve and maintain a monthly point value of 4,000. However,
petitioners had not actually made this determination for
themselves; rather, they relied on statements to this effect
by other Amway distributors and hypothetical examples in
Amway brochures. During the years in issue, it appears that
petitioners’ point value did not exceed 372 in any given month.
As noted, petitioners filed a timely joint Federal income
tax return for each year in issue. Included with each return is
a Schedule C, Profit or Loss From Business. Petitioners’
Schedule C for 1998 lists their principal business as “Amway
Sales and Distribution”. For 1999, petitioners’ Schedule C lists
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Last modified: May 25, 2011