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distributor purchased the platinum service.4 Thus, if an upline
distributor sold the system and a year’s subscription to the
platinum service, he earned commissions totaling $66. An upline
distributor also earned commissions based on a downline
distributor’s sales and on the downline distributor’s success in
developing his own downline distribution network. See Elliott v.
Commissioner, 90 T.C. 960 (1988), affd. without published opinion
899 F.2d 18 (9th Cir. 1990), for a general discussion of multi-
level marketing.
Petitioner David Sears (Mr. Sears) was recruited as a
downline distributor in August 1999. He also purchased the
platinum service, which he maintained until he discontinued his
involvement with RTP in 2001.5 To generate sales and recruit
downline distributors of his own, he frequently went to coffee
shops or doughnut shops and initiated conversations with other
patrons about taxes. Mr. Sears would mention the RTP system “as
an alternative to just complaining” about taxes. He also invited
acquaintances to dinner to discuss the system. During this time,
4 The upline distributor did not provide the tax advice and
other services to downline distributors. RTP provided such
services directly.
5 Petitioner Carol McCabe (Ms. McCabe) also purchased the
system and the platinum service; however, petitioners do not
claim that Ms. McCabe’s RTP activity was a trade or business for
Federal income tax purposes. They testified that only one person
was covered by the $100 platinum service fee. Thus, in order for
Ms. McCabe to receive tax and financial planning advice of her
own, she had to purchase separately the system and the platinum
service.
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Last modified: May 25, 2011