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!
Excerpts:
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?
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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.
Do you remember George Orwell's frightening novel "1984"? The same process was at work in the horrible dystopian world that the main character lived in. Slogans were posted on the walls:
ReplyDeleteWAR IS PEACE
HATE IS LOVE
IGNORANCE IS KNOWLEDGE
Is Amway any different? They tell you that "Losing money is success."
I've even seen IBOs claim that their tax returns are profit, even though they got larger refunds due to the losses they took for buying tools. But as the story goes, Amway IBOs get hised if the IRS actually audits their returns.
ReplyDeleteI'm a wierd brand of Ambot. I know it's little more than a pyramid scheme and a cult, but I enjoy it. The people are amazing, the functions are engaging and motivating, and learning how to use textbook psychology influence techniques has improved my social life tremendously.
ReplyDeleteCan I, in good conscience, sanction the economics of it? Ehhhhh...a resounding no. MLM is a disaster that is bound to bring financial losses to 99% of participants (see studies from Robert Fitzpatrick and MLM-the truth.com). But it gives me a sense of purpose and meaning I don't get from work, school, or any religious association.
Since joining, I've been following yours and Anna's blog (Married to an Ambot). Most (in fact, almost ALL of your criticisms) about the organization are true. But even though your blogs speak the truth, high on the social solidarity and the illusion of attainable wealth, I'll ignore logic. To some extent, I do believe in the social aspect of what Amway (or rather, my AMO) does: teach confidence-building, self-reliance and hard work. But that's not what people buy into when they sign up: they're buying into the dream of making millions.
I have learned to live with a level of cognitive dissonance that is uncomfortable for most people. Is there just something wrong with me?
I know Amway brainwashes you. I've been brainwashed, yet I'm aware of it. Strangely, nothing about my affinity towards Amway is logical; its 100% an emotional connection to the people, the dream, and a shared fanaticism towards "building the business."
To my credit, I won't be dropping out of school (like some of my friends have) or selling my car to pay for Amway products. But something in me tells me it's worth pursuing (even if it means paying for overpriced standing order, functions, and products that would not stand a snowball's chance of survival on the free market at these prices).
Joecool, thanks for sharing your experiences in the business. They serve to keep me sane. It's VERY easy to get sucked into the obsessive (and statistics-ignoring) hype of Amway. I'm actively building the business, but Im as honest as possible when prospecting, even if it means letting them know the statistics. Thanks for adding a logical balance to the Amway hype!
To Anonymous at 1:49 AM --
ReplyDeleteLet me get this straight.
You know that Amway is a pyramid scheme, you know that it is a cult, you know that it brings "financial disaster" (your own words) to 99% of its members, you know that it brainwashes you, and you know that its products are overpriced.
Nevertheless, you love Amway because it gives you a wonderful emotional feeling, and you'll "ignore logic."
As they say when texting, WTF?
And you're prepared to waste years of your life and get your financial ass handed to you because the Amway scam makes you FEEL GOOD?
Holy shit.
To Anonymous @ September 4, 8:20pm.
ReplyDeleteHahaha, pretty much. :P
But hang on...
Is it really so hard to believe that someone would make a poor financial decision based on emotion? The lottery plays on a statistical improbability of success, but many buy into it. Add lovebombing, recognition for success (even if that success is a nominal pin rank without regard to profitability), reciprocity and liking, and you can easily see the reason Amway is so attractive to some...and has been able to survive for so long even with its reputation.
And no, I'm not banking my financial future on this. I am, however, concerned for my brethren in the organization who have given up work promotions, education, and quite frankly, their social lives outside of the cult. Not only are they unaware of the nature of the poor statistics--they refuse to look at them.
To Anonymous of 12:19 AM --
ReplyDeleteOf course I understand that people make poor financial decisions based on emotion. It happens all the time.
What I DON'T UNDERSTAND is how you can be so flippant and blase about the whole business, as if it were no more important than dropping a few bucks on a lottery ticket! Or how you can defend a rigged pyramid MLM scam on the basis of the utterly irrelevant fact that it makes you feel good! That's like saying that you don't mind being in the Nazi party because the uniforms are so cool.
You certainly can find fun and friendship and communal interaction in dozens of places. Do you really need to find it with a pack of obsessed losers in Amway? And are you comfortable with just sitting back and watching them get ripped off by up-line, and perhaps be destroyed? Maybe you're smart enough to see that Amway is a scam, but they aren't. But what do you care -- you're "having a good time."
Excuse me for thinking that you are being irresponsible.
As usual, sound of crickets chirping.
ReplyDeleteCrickets still chirping.
ReplyDelete