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tax consequences of petitioners’ activity.2 For simplicity and
consistency, we generally refer to petitioners as an Amway
distributorship rather than as a Quixtar IBO.
An Amway distributor earns income by selling products and
recruiting new downline distributors. Under Amway’s compensation
system, a distributor earns a “performance bonus” based not only
on the sales volume generated by the distributor himself but also
on the sales volume generated by the distributor’s downline
network.3 Generally, distributors earning large performance
bonuses have developed a large and broad network of downline
distributors.
Petitioners focused their efforts upon building their
downline network rather than developing a customer base and
2 According to petitioners, the primary change that
resulted from Amway’s restructuring was that Quixtar expanded the
range of items available for sale to customers to include many
commonly used household and personal products not manufactured by
Amway, and its Internet-based sales system eliminated the need
for petitioners and other distributors to warehouse products.
Petitioners’ compensation did not change, as they received credit
for any products ordered online through their distributor number
just as they previously had received credit for items ordered
through them or their downline distributors.
3 To calculate the performance bonus, Amway uses a
“performance bonus schedule” based upon a distributor’s “business
value” (BV) and “point value” (PV). BV is a dollar amount
assigned to each product. BV is used for the calculation of
monthly and annual bonuses. PV is a unit amount assigned to each
product. PV determines the distributor’s performance bonus
bracket. If the PV is high, because of high unit sales by the
distributor and his downlines, that distributor will receive a
correspondingly high performance bonus in the form of a high
percentage of his BV.
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Last modified: May 25, 2011