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the keeping of books and records may represent nothing
more than a conscious attention to detail. In this
case, there has been no showing that books and records
were kept for the purpose of cutting expenses,
increasing profits, and evaluating the overall
performance of the operation. * * *
Golanty v. Commissioner, supra at 430.
Thus, we found significant in Dworshak not simply that the
taxpayer maintained records, but that the taxpayer used those
records as a tool to analyze how to make his direct marketing
business profitable. For example, the taxpayer in Dworshak
devised a system to keep track of the success rates of his
solicitation activities. As a result, during the first year and
a half of his operation, the taxpayer knew that about 2 percent
of people to whom he mailed solicitation materials purchased
products from him. When those statistics demonstrated that the
success rate for his direct mail solicitations dropped below 0.5
percent, the taxpayer concluded that it would be more effective
to use telephone and in-person solicitations. There is nothing
in the record before us that suggests any similar use or analysis
of the records Mrs. Smith maintained.
Mrs. Smith’s testimony that she switched companies for which
she distributed when she concluded that other companies would be
more profitable is unconvincing and not supported by the record.
There is nothing to suggest any analysis by Mrs. Smith of why she
thought Espial and Renaissance were not profitable and why
switching to Cyberwize and 24/7 Internet Marketing would prove
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Last modified: November 10, 2007