US & Canadian Amway Distributor Tax Court Cases
Last updated 1//3/2005

"Work right out of your home, get some tax benefits. Basically it gives me an opportunity to make about $2,000/month in my spare time. That's about $24,000 per year. That's equivalent to about $30,000 per year when you take into account the tax benefits." Triple Diamond-Ron Puryear-Tape: "Basics of the Business" RP681

Post your AmQuix Tax experience: write me an e-mail

Amway's position on "Tax Write Offs" in July 1982 Amagram Page 40 and Page 41

Here are numerous cases that went to US tax court, three to Canadian tax court, and to German tax court concerning Amway distributor losses, which detail some of their typical expenses as well as total losses.

There are numerous things these cases show:

Search the US Tax Court
Search the Canadian Tax Court

IBO Cases for 2004
http://www.ustaxcourt.gov/InOpHistoric/ Ollett3.SUM.WPD.pdf
http://www.ustaxcourt.gov/InOpHistoric/ Dworshak.TCM.WPD.pdf

IBO Cases for 2003
http://www.ustaxcourt.gov/InOpHistoric/Guadagno.SUM.WPD.pdf
http://www.ustaxcourt.gov/InOpHistoric/Lopez8.TCM.WPD.pdf
http://decision.tcc-cci.gc.ca/en/2003/html/2003tcc413.html

IBO Cases for 2002
http://www.ustaxcourt.gov/InOpHistoric/Minnick.SUM.WPD.pdf

IBO Cases for 2001
Urteil des FG Nürnberg (German Tax court Case)
http://www.ustaxcourt.gov/InOpHistoric/MOORE.SUM.WPD.pdf
http://www.ustaxcourt.gov/InOpHistoric/MEYER.SUM.WPD.pdf
http://www.ustaxcourt.gov/InOpHistoric/LANDRUM.SUM.WPD.pdf
http://decision.tcc-cci.gc.ca/en/2001/html/2001tcc20002480.html
http://decision.tcc-cci.gc.ca/en/2001/html/2001tcc20002106.html
http://decision.tcc-cci.gc.ca/en/2001/html/2001tcc19994571.html
http://decision.tcc-cci.gc.ca/en/2001/html/2001tcc20003396.html
http://decision.tcc-cci.gc.ca/en/2001/html/2001tcc20002090.html

IBO Cases for 2000
http://www.ustaxcourt.gov/InOpHistoric/NISSLEY.TCM.WPD.pdf
http://decision.tcc-cci.gc.ca/en/2000/html/2000tcc982583.html

IBO Cases for 1999
http://decision.tcc-cci.gc.ca/en/1999/html/1999tcc981391.html
http://decision.tcc-cci.gc.ca/en/1999/html/1999tcc1999101.html
http://decision.tcc-cci.gc.ca/en/1999/html/1999tcc981478.html

Case Name

Nissley TC memo 2000-178 Ogden TC memo 1997-297 Jordan TC memo 1991-50
Measure Original Tax Court file Original Tax Court file  
Total Gross Revenue $84,022 (8 years) $8,413 (3 years) $42,882, $41,613
Total Expenses $271,776 (8 years) $67,997 (3 years) $51,549, $49,439
Total Losses $187,754 (8 years) $59,584 (3 years) $8,667, $7,826
Years of data 8 3 2
Downline size 75  17 Personally sponsored Pearl distributor-400, 12 levels deep
Personal sales volume/year $2,133, $3,282, $3,786 $1,800 - $2,400  
Total product volume   $43,575 in 1993, $66,276 in 1994, $76,526 in 1995  
Number of Plans shown/year   137, 200, 104 - (2 hours/plan)  
Miles driven/year 23,398 38,277 29,945 30,000  
Hours spent on business 51-80 hours/week husband & wife   40-60 hours/week wife, 20-25 hrs/wk husband,10-20 hrs/wk daughter
       

Case Name

Swaffer TC memo 1992-280 Theisen TC memo 1997-539 Rubin TC memo 1989-290
Total Gross Revenue $1,471    
Total Expenses $10,260    
Total Losses (yearly) $8,789 $2,745, $11,074, $14,881, $13,008, $11,681 $8,276, $7,595, $8,588, $3,204
Years of data 1 5  
Downline size 4-5 active   13 sponsored
Personal sales volume/year $6,485 $7,762, $15,720 $12,465 all years
Total product volume $21,546    
Miles driven/year 13,360    
Hours spent on business   10-15 hours/wk husband, 4 hours/wk wife 3-4 nights/week
       

Case Name

Ransom TC memo 1990-381 Poast TC memo-1994-399 Aldea TC memo 2000-136
Total Gross Revenue $981, $867 $28,668 (6 years) $365
Total Expenses $23,188, $17,300 $229,838 (6 years) $3,712
Total Losses (yearly) $22,207, $16,433, $23,254 $330,816 (10 years) $3,347
Years of data   6 1
Downline size 75-100 Customers    
       

Case Name

Hart TC memo 1995-055 Goldstein TC memo 1986-339 Elliott TC memo 1990-960
Total Gross Revenue $2,143 $203 $526
Total Expenses $15,781 $32,432 $14,911
Total Losses $13,638 (one year) losses were reported every year from 1979-1990 $32,229 $14,385
Years of data  1 1
Downline size   1 1
Personal sales volume/year $2,128 $576 $2,070
Total product volume $13,096    
Hours spent on business 8 hrs/week   20-40 hrs/week
     
Case Name Nordick 98-814(IT)I Noseworthy 97-3395(IT)G Keeping 97-3402(IT)G
Total Gross Revenue $16,097 $10,918 $11,488 1994
Total Expenses $45,851 $34,974 $25,847 1994
Total Losses $47,020 $24,055 1995

$119,162 1990-1995

$14,358

$61,912 1990-1995

Years of data 4 6 6
Total product volume   about $200,00 Canadian $104,911 1996
Hours spent on business 100 hours/week    

 

Other cases with little data:

Alcala_TC_memo_1984-664.html

Brennan_TC_memo-1997-60.html

Emmons_TC_memo-1992-342.html

Ferrell_TC_memo-1987-102.html

Schroeder_TC_memo_1986-583.html

See this case where Amway gets scammed for $600,000 on an investment scheme.

Breckenridge_TC_memo_1983-66.html

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Nissley Summary

In a decision released (Nissley, T.C. Memo. 2000-178), the Tax Court again manages to keep a straight face while explaining why it disallowed the Amway losses of a husband and wife, both CPA's, from Indianapolis. What may be most notable about this case is that the taxpayers were represented by three attorneys; IRS, by only one. IRS had proposed deficiencies for 1994, 1995, and 1996 in the amounts of $9,189, $9,446, and $7,495. Here are some excerpts from the Tax Court opinion:

"...Amway maintains a "pyramid" incentive system. Under this system, an "upline" distributor receives a bonus based on the volume of sales generated by his or her "downline" distributors. Thus, the system presumes that the "upline" distributor's potential for profit will increase as his or her network of "downline" distributors becomes wider and deeper. Because the "upline" distributor's bonus is based on the volume of sales generated by "downline" distributors, such bonus is not directly affected by a "downline" distributor's profitability or lack of profitability.

"...A major reason why many individuals remain committed to Amway is the congenial sense of family and the gratifying motivational feeling that they derive from participating in the activity.

"...Although petitioners may have maintained a separate bank account and records for their Amway activity, such bank account and records appear to have been maintained principally to satisfy substantiation requirements imposed by the Internal Revenue Code and thus to "guarantee" the deductibility of expenses. In contrast, such bank account and records do not appear to have been used as analytic or diagnostic tools in an effort to achieve profitability of petitioners' Amway activity.

"...petitioners have relied only on advice from one of their "upline" distributors and other interested Amway individuals. Yet, under the Amway system, the "upline" distributor's bonus is not directly affected by the "downline" distributor's profitability or lack of profitability; rather, it is the "downline" distributor's volume of sales that is important to the "upline" distributor. Nevertheless, petitioners have steadfastly refused to seek counsel from disinterested third parties regarding means by which their Amway activity might be made profitable.

"...Finally, this Court has observed that "there are significant elements of personal pleasure attached to the activities of an Amway distributorship" and that "an Amway distributorship presents taxpayers with opportunities to generate business deductions for essentially personal expenditures." Brennan v. Commissioner, T.C. Memo. 1997-60..."

"...The record suggests that petitioners enjoy the same congenial sense of family and the same gratifying motivational feeling from participating in their Amway activity as do many other individuals who remain committed to Amway. The record also suggests that Amway constitutes an important part of petitioners' social life.

"...Petitioners estimate that they devoted between 51 and 80 hours per week to their Amway activity, with Mrs. Nissley spending 21 to 40 hours per week and Mr. Nissley spending 30 to 40 hours per week. Petitioners contend that devoting so much time to their Amway activity is indicative of a profit objective.-See sec. 1.183-2(b)(3), Income Tax Regs. However, we regard petitioners' estimate as excessive. See Kropp v. Commissioner, T.C. Memo. 2000-148 ("As a trier of fact, it is our duty to listen to the testimony, observe the demeanor of the witnesses, weigh the evidence, and determine what we believe."); see also Tokarski v. Commissioner, 87 T.C. 74, 77 (1986) ("we are not required to accept the self-serving testimony of petitioner * * * as gospel."); cf. Diaz v. Commissioner, 58 T.C. 560, 564 (1972). In any event, many individuals devote considerable time to their hobbies and similar activities."

Here is a E-mail I have received from a site readers about the supposed Amway/Quixtar tax benefits. 

Scott-

Let me start off by saying that I need a little more time to get our tax information together. I do want to expand upon some of my feelings. This has been bottled up for a few months now, but I agree with you, people need to know. Amway is not a financially risk free business.

When we joined the business, our sponsor said that one of the greatest benefits of starting and maintaining an Amway business were the tax benefits. We didn't know what he meant by that at first, but we have come to find that this is truly where the American people should be outraged.

Our sponsor's position was this. If you get all dressed up to go show the "plan", and for whatever reason there is a no show, or you get thrown out of the house. (The second you say it's Amway, they throw you out, or it's the 16th time they have been deceived by someone wanting to show them a way to make extra money) Now, you just go to dinner afterwards, etc.

It's been taught us that it is a tax write off (legitimate business expense); all the mileage, the dinner price for you and your spouse, every purchase that you made in the name of business during that evening, was a tax write off. That is just one night. Do you know how many Amo-ites there are out there, pretending like they are building a business, who are actually just going through the motions and then claiming huge tax write-offs because of their "business expenses"?

They put on their dark suits, and red ties. The wife, if there is one, gets all dressed up, and drive to their cousins house 120 miles away to stop by just because they were in the neighborhood. They hope that the cousin will bring up the discussion of why are they all dressed up, with seemingly no where to go, so they can get a "plan" in that night. The joke is actually on them. The first time they showed the plan to a family member, the whole family knew in an instant that they were in. Amway and the warning then went out to all family members that if they showed up and were dressed up and seemed anxious, that they were trying to find a way to get them into Amway. After the cousins didn't say anything about why they were dressed up, they went to the local steak house and charged a $50-$60 meal to the American tax payers.

How do I know this, you may be asking? Because my wife and I lived off these tax breaks for three years. I am totally at fault. I cannot say that because my sponsor, and thousands of other "active" distributors in this country, cheated the government and stole money from the American taxpayer, that this caused me a three year hiatus from having my own common sense. To the contrary, it felt wrong and it is wrong.

Now if this note gets published and there are some active distributor's, er, I mean IBO's, as I have heard they are now calling themselves, who read this, they are going to be mad. They will justify to everyone who will listen that their business is legitimate, and that they have a right under the current tax codes to get a tax break if they have "expenses" while "building" their legitimate business. Come on, give me a break, as Jerry Meadows is so famous for saying. Who in the hell do you think we are? It's time that there is an awakening in this country. It's time for a reality check. There is a scam going on right here, right now and it's time that it gets exposed. I cheated the system right along with everyone else for three years. I have tapes from the "system" that talk about one of the benefits of having a distributorship, (and let's call it what it is), is the tax breaks. It's never talked about specifically because if it were, then there would be proof that it was going on, which is just like everything else in the business.  

 This is a great provider and has access in all areas, we just called and checked for a local number in our area and signed up. We were paying 19.99 a month for unlimited access now we are at 13.99 a month. If you want details email us. (this is yet another perk of our business, the ability to market this isp....wouldn't you love to come over Nov 17'th to a meeting at our house, no obligations, just a review of what we are doing - and don't forget we originally started up for personal use discounts then became aware that it was to good to be true and decided we wanted to help all of you receive the same benefits and discounts we are....Mike and I are going to dinner tonight then a meeting --tax break.....we can bring up to 2 guests....are you free?).

 

If you merely sell products to customers you would just be swapping one job for another. Why not just buy the products and teach others to do the same? Everyone has to wipe so why not buy toilet paper from your own store? There are people that do retailing and are very good at it, but like any customer, they can go to another IBO and buy "stuff" from them. Then you gotta go out and look for another customer. Or, you gotta call them all the time and ask them if they need anything else. If you make the person an IBO, you are in a win-win situation. First they buy the product at wholesale prices, if they chose to build the business, you help them and when they make money, they stay in.

Like I said before, we aren't making the big bucks yet... But tax season alone we went from owing 2 grand to getting back 7. I know without a doubt we didn't spend 7 grand. The tax laws are in place to favor the business owner not the employed person. I don't know of any business that costs $125.00 and gives you back 7 grand at the end of the year. The average IBO would probably have about a 3 grand tax advantage. If we went to all the functions and bought the tapes etc, it wouldn't cost 3 grand. However, you can also write off first time product use, makeup, mileage, equipment, office supplies, demo equipment, travel, ski trips, etc. it adds up (more than 3 grand but most of this stuff I do anyways without the business). I mean if you are gonna go to a restaurant anyways whether you own a business or not, doesn't it make sense to own one, talk about what you do, and write it off?