Hi all. Great legal update (USA) - IBOs cant use MLM losses against tax.
Amway tells members they can offset "system/tools" expenses against tax from "J.O.B" working. No longer. (And note the losses...)
"Court denies tax deduction for Amway losses
The U.S. Tax Court has ruled that losses sustained by a pair of Amway distributors were not tax-deductible as business expenses. IRS regulations hold that for losses to be tax deductible, the underlying activity must involve credible efforts to earn money. Activities that comprise a hobby or merely provide products for personal use do not qualify. Noting that from 2005 through 2011, the couple reported gross receipts of only $5,098 and a total net loss of $99,000, the Court concluded:
Petitioners did not create a business plan, budget, or estimate of revenues and expenses; nor did they introduce records demonstrating the amount of product they sold, who their customers were or how many customers they had, or who their downline distributors were or how many downline distributors they had. Although petitioners carefully maintained receipts, they did not use those receipts to maintain a general ledger, create profit and loss statements, or improve the performance of their Amway activity. To the contrary, petitioners used a document that merely explained Amway's payment structure as their business plan and operated their Amway activity in the same manner each year despite consistently generating losses. On these facts, it appears that petitioners maintained receipts for substantiation purposes only rather than to monitor the income and expenses of, and ultimately improve, their Amway activity. Accordingly, the Court concludes that petitioners did not operate their Amway activity in a businesslike manner.
In 2011, blogger Peter J. Reilly, CPA, summarized 23 other unfavorable rulings and concluded: "If the reason you want to start a business is so that you can deduct money you spend anyway (something I advise you not to do), Amway is probably one of the worst things that you could pick." [Reilly PJ. Selling soap as a hobby - Amway IBO’s in Tax Court, Passive Activities and Other Oxymorons Blog, June 15, 2011] MLM Watch has an article on Amway's origins.
hat tip Dr Barratt's excellent Quackwatch site: www.quackwatch.com