Joecool's blog made a mention on forbes.com. Blogger Peter Reilly has written several articles about Amway IBOs who got hosed in tax court. Basically, IBO's often lack a business plan and in the eyes of the IRS, lack a true profit motive. Thus if an IBO is attending functions and meetings as a social function and not a legitimate business meeting, the deductions can be disallowed.
Take a look at the article. It's a great read!
I was surprised to see that I haven’t written about an Amway case in over two years. Well, a new one came out this week and James E. Hess, like pretty much every taxpayer who has ever disputed disallowance of Amway losses in Tax Court, lost. Amway cases are a subset of Section 183 (commonly known as hobby loss) cases.
The rule is that in order to post losses to your tax return, the underlying activity has to be one in which you were trying to make money. I have written about quite a variety of activities where the taxpayer has contested an IRS hobby loss determination- musicians, artists, drag racers, players of slot machines, even blogging to name a few. The most common though are horses and Amway. The horse people frequently win, but the Amway people pretty much always lose.
Tax Court Seems To Align With The Critics
What I found most intriguing about this decision, is that way that it mirrors critiques of the Amway experience, which seem to have their own section of the blogosphere. For example Joecool of Amway – The Dream Or The Scheme? recently wrote in a post called Amway Success?
Submission to upline was one of the things we were told. Our group was told that upline would never purposely lead us astray so we should trust them and never try anything without checking upline.
Our group was taught to reduce debt, but ironically, upline said it was okay to go deeper in debt if it was to attend a function or to buy more cds.
Anytime we asked about how much income uplines may have been earning, we were either told it’s none of our business or shown a photocopy of a 10 year old bonus check that someone upline may have received. Our proof that the business worked was upline showing off pictures of sports cars and mansions.
Losing money is success. Many times, our group was told that losing money was a sign of success. It was success because we were investing in our futures. That the business really is not about money but about friendships. I suppose upline taught this because everyone was losing money so it was nice to hear that success was around the corner, and that we were all nicer people and on our way to success if we just attended more functions and bought more standing orders.