Samer Mikhail & Mariana Mikhail v. Commissioner , 2014 T.C. Summary Opinion 40 ( 2014 )

T.C. Summary Opinion 2014-40UNITED STATES TAX COURT
SAMER MIKHAIL AND MARIANA MIKHAIL, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 20199-12S. Filed April 22, 2014.
Samer Mikhail and Mariana Mikhail, pro sese.
William R. Brown, Jr., for respondent.
SUMMARY OPINION
GUY, Special Trial Judge: This case was heard pursuant to the provisions
of section 7463 of the Internal Revenue Code in effect when the petition was
filed.1 Pursuant to section 7463(b), the decision to be entered is not reviewable by
1
Unless otherwise indicated, section references are to the Internal Revenue
(continued...)
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any other court, and this opinion shall not be treated as precedent for any other
case.
Respondent determined a deficiency of $8,286 in petitioners’ Federal
income tax for 2009 and an accuracy-related penalty of $1,657 pursuant to section
6662(a). Petitioners, husband and wife, filed a timely petition for redetermination
with the Court pursuant to section 6213(a).
The issues for decision are: (1) whether petitioners engaged in sales and
recruiting activities for profit within the meaning of section 183, (2) if so, whether
petitioners substantiated deductions they claimed for vehicle and travel expenses,
and (3) whether petitioners are liable for an accuracy-related penalty under section
6662(a). To the extent not discussed herein, other adjustments are computational
and flow from our decision in this case.
Background
Some of the facts have been stipulated and are so found. The stipulation of
facts and the accompanying exhibits are incorporated herein by this reference. At
the time the petition was filed, petitioners resided in Florida.
1
(...continued)
Code (Code), as amended and in effect for 2009, and Rule references are to the
Tax Court Rules of Practice and Procedure. All monetary amounts are rounded to
the nearest dollar.
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I. Petitioners
Dr. Mikhail graduated from the New York College of Osteopathic Medicine
in 2004 and completed his medical residency at the University of South Florida in
2007. Since then, he has worked full time as a physician practicing internal
medicine at a hospital operated by the U.S. Department of Veterans Affairs in
Florida.
The wages that Dr. Mikhail earns as a physician are petitioners’ primary
source of income. During 2007, the final year of his medical residency, Dr.
Mikhail earned $64,097. His wages during 2008, 2009, 2010, and 2011 were
$145,235, $157,621, $165,146, and $168,627, respectively.
Mrs. Mikhail graduated from Baruch College in New York with a
bachelor’s degree in international marketing in 1999. She worked for Myers
International and later R.J. Reynolds in New York City between 1999 and 2003.
Petitioners are the parents of two children, a son born in 2003 and a
daughter born in 2009. Since 2004, Mrs. Mikhail has had some short-term, part-
time jobs, but she has primarily been a homemaker.
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II. Amway
Amway Corp. (Amway) is a supplier of household, cosmetic, and nutritional
products that are sold by individuals (distributors) through direct marketing.
Amway’s compensation of its distributors is based on the volume of the
distributors’ sales to customers and the volume of sales made by “downline”
distributors. Amway distributors are permitted to purchase Amway products for
personal consumption at a discounted price.
Amway’s compensation system for distributors results in a pyramidlike
network of distributors. Under this system an “upline” or “sponsor” distributor is
encouraged to recruit new “downline” distributors to become part of his or her
organization. “Downline” distributors likewise are encouraged to recruit new
distributors who in turn become “legs” of the original “upline” distributor’s
organization. “Downline” distributors recruited by the same “upline” distributor
are referred to as “crossline” distributors. An “upline” distributor receives bonus
payments from Amway based on the volume of sales (as opposed to profits)
generated by the “downline” distributors who are part of his or her organization.2
2
See Nissley v. Commissioner, T.C. Memo. 2000-178, for a more complete
description of Amway’s compensation system.
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III. Petitioners’ Amway Activities
Dr. Mikhail was recruited as an Amway distributor by his dentist in 2004,
and he began to operate a distributorship under the name “The Logos”. At the
time petitioners had no experience in direct marketing or operating a small
business.
Dr. Mikhail testified that he conducted independent research to learn more
about Amway. He concluded that negative assessments about the Amway
business model are attributable to individuals “who did not follow the system”.
Petitioners conducted their Amway activities in accordance with
instructions from their “upline” distributors, educational materials obtained from
an Amway-related educational system known as Leadership Team Development
(LTD),3 and information obtained while attending Amway seminars, workshops,
and conferences. Petitioners did not seek advice from disinterested professionals,
develop a business plan, prepare profit projections, or undertake any type of
market analysis.
Petitioners attended weekly and monthly Amway meetings held locally and
elsewhere in Florida. During 2009 they attended five national Amway
3
LTD sells books and CDs that contain instruction and training for Amway
distributors.
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conferences most of which were held out of State. Petitioners also hosted some
weekly meetings for Amway distributors and recruits in their home. Petitioners
took trips to New York and Texas to discuss Amway with family and friends.
Dr. Mikhail testified that the time he devotes to Amway activities is largely
directed at recruiting new distributors. He further testified that he usually spends
his lunch hour, as well as an hour or two after work, and approximately three
hours every weekend on Amway activities and that Amway is always “at the
forefront” of his mind. Dr. Mikhail spent more time on Amway activities than
Mrs. Mikhail.
Mrs. Mikhail testified that she is responsible for bookkeeping, business
management, and organization of Amway parties and events. During 2009 she
maintained records of the couple’s Amway-related expenses including a mileage
log, a spreadsheet listing monthly expenses, and credit card statements.
Petitioners did not use their Amway records to prepare a formal budget or conduct
a break-even analysis.
Petitioners sold Amway products to family members, close friends, and
coworkers. At the time of trial, petitioners had 22 customers who purchased
Amway products from them sporadically. Petitioners testified that approximately
70-75% of their Amway sales volume was attributable to products and services
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that they purchased for personal consumption such as food, diapers, clothing, and
household products. They also enjoyed Amway-related discounts on products and
services purchased from businesses and retailers such as Disney, Sony, Nike, and
Best Buy.
Petitioners initially attempted to recruit family members and friends as
“downline” distributors but found that most of them were unable to “overcome
their life circumstances and continue to build Amway with us”. Petitioners later
altered their recruitment strategy by frequenting upscale restaurants and shopping
areas and striking up conversations with people they encountered with the aim of
identifying what they termed “learners”. Petitioners purchased books and CDs
from LTD and gave them to potential recruits.
Although petitioners testified that they registered some “downline”
distributors along the way, by the end of 2008 they had no “downline”
distributors. Dr. Mikhail acknowledged that he was unable to spend sufficient
time on Amway activities while he was fulfilling his medical residency
requirements between 2004 and 2007. In 2009 petitioners recruited a “downline”
distributor who apparently began to register her own “downline” distributors
(thereby expanding petitioners’ organization).
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IV. Petitioners’ Amway Losses
Petitioners filed joint Federal income tax returns for the years 2005 through
2011. Petitioners attached to each of those returns a Schedule C, Profit or Loss
From Business, identifying Dr. Mikhail as the “proprietor” of a “sales and
recruiting” business. As of the time of trial petitioners had never reported an
annual profit from their Amway activity. From 2005 to 2011 petitioners reported
cumulative net losses attributable to the Amway activity of $192,427 as follows:
Gross
Tax year receipts Net loss
2005 $613 ($15,943)
2006 1,924 (20,136)
2007 3,725 (29,298)
2008 3,229 (41,598)
2009 4,811 (39,919)
2010 5,728 (38,825)
2011 9,459 (6,708)
Total 29,489 (192,427)
Petitioners testified that they believed that they would eventually earn
profits from the Amway activity over the long run and that the activity would
provide financial benefits to their family for years to come. Petitioners further
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testified that the losses they have incurred will be offset by gains that they expect
to earn in 2014 and the years thereafter.
V. Petitioners’ 2009 Tax Return
Petitioners timely filed a joint Federal income tax return for 2009 reporting
that Dr. Mikhail and Mrs. Mikhail earned wages of $157,621 and $419,
respectively. Petitioners attached to the return a Schedule C reporting gross
receipts of $4,811, expenses of $44,730, and a net loss of $39,919 in respect of the
Amway activity. Petitioners reported the following Amway-related expenses:
Item Amount
Vehicle $17,548
Legal/professional services 1,325
Office expenses 248
Supplies1 11,634
Travel 8,003
Meals and entertainment 68
Other expenses 5,904
Total 44,730
1
This item represents the amount petitioners
paid to LTD for Amway training materials.
Petitioners reported total tax of $9,994 for 2009.
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VI. Notice of Deficiency and Increased Deficiency
Respondent issued a notice of deficiency to petitioners disallowing the
deductions they claimed on Schedule C for vehicle and travel expenses for lack of
substantiation. Respondent determined a tax deficiency of $8,286 and an
accuracy-related penalty under section 6662(a).
After filing an initial answer to the petition, respondent filed an amended
answer alleging that petitioners did not engage in the Amway activity with the
intent of earning a profit in 2009 and they are not entitled to deductions (in excess
of their gross receipts from the activity) in accordance with the provisions of
section 183. In conjunction with these allegations, respondent asserted that
petitioners are liable for an additional deficiency and an increased accuracy-related
penalty under section 6662(a).
VII. Tax Return Preparation
Petitioners delivered their tax records for 2009 to Ron Hienstand, a certified
public accountant (C.P.A.), who has prepared their tax returns since 2008.
Mr. Hienstand prepared the return in accordance with petitioners’ tax records and
filed the return electronically. Petitioners testified that they relied on
Mr. Hienstand to properly prepare their return.
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Discussion
The Commissioner’s determination of a taxpayer’s liability in a notice of
deficiency normally is presumed correct, and the taxpayer bears the burden of
proving that the determination is incorrect. Rule 142(a); Welch v. Helvering, 290
U.S. 111, 115 (1933). The Commissioner bears the burden of proof, however, in
respect of an increased deficiency. Rule 142(a)(1). As previously mentioned,
respondent filed an amended answer asserting that petitioners are liable for an
increased deficiency and accuracy-related penalty on the ground they did not
engage in the Amway activity with the requisite profit objective. Consequently,
respondent bears the burden of proof on that issue. See sec. 7491(a)(1) and (2);
Higbee v. Commissioner, 116 T.C. 438, 442-443 (2001).
I. Section 183
Under section 183(a), if an activity is not engaged in for profit, then no
deduction attributable to that activity is allowed except to the extent provided by
section 183(b). In pertinent part, section 183(b) allows those deductions that
would have been allowable had the activity been engaged in for profit only to the
extent of gross income derived from the activity (reduced by deductions
attributable to the activity that are allowable without regard to whether the activity
was engaged in for profit).
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Section 183(c) defines an activity not engaged in for profit as “any activity
other than one with respect to which deductions are allowable for the taxable year
under section 162 or under paragraph (1) or (2) of section 212.” Deductions are
allowable under section 162 or under section 212(1) or (2) if the taxpayer is
engaged in the activity with the “actual and honest objective of making a profit”.
Dreicer v. Commissioner, 78 T.C. 642, 645 (1982), aff’d without published
opinion, 702 F.2d 1205 (D.C. Cir. 1983); Golanty v. Commissioner, 72 T.C. 411,
426-427 (1979), aff’d without published opinion, 647 F.2d 170 (9th Cir. 1981).
The existence of the requisite profit objective is a question of fact that must
be decided on the basis of the entire record. Elliott v. Commissioner, 84 T.C. 227,
236 (1985), aff’d without published opinion, 782 F.2d 1027 (3d Cir. 1986);
Dreicer v. Commissioner, 78 T.C. at 645; sec. 1.183-2(b), Income Tax Regs. In
resolving this factual question, greater weight is given to objective facts than to a
taxpayer’s statement of intent. See Westbrook v. Commissioner, 68 F.3d 868,
875-876 (5th Cir. 1995), aff’g T.C. Memo. 1993-634; sec. 1.183-2(a), Income Tax
Regs. For purposes of deciding whether the taxpayer has the requisite profit
objective, profit means economic profit, independent of tax savings. Surloff v.
Commissioner, 81 T.C. 210, 233 (1983).
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The regulations set forth a nonexhaustive list of factors that may be
considered in deciding whether a profit objective exists. These factors are: (1) the
manner in which the taxpayer carries on the activity; (2) the expertise of the
taxpayer or his advisers; (3) the time and effort expended by the taxpayer in
carrying on the activity; (4) the expectation that the assets used in the activity may
appreciate in value;4 (5) the taxpayer’s success in carrying on other similar or
dissimilar activities; (6) the taxpayer’s history of income or losses with respect to
the activity; (7) the amount of occasional profits, if any, which are earned; (8) the
financial status of the taxpayer; and (9) any elements indicating personal pleasure
or recreation. Sec. 1.183-2(b), Income Tax Regs.
No single factor, nor even the existence of a majority of factors supporting
or rebutting the existence of a profit objective, is controlling. Id. Rather, all facts
and circumstances with respect to the activity are to be taken into account.
Golanty v. Commissioner, 72 T.C. at 426; sec. 1.183-2(b), Income Tax Regs.
A. Manner in Which Petitioners Carried On the Amway Activity
If a taxpayer carries on the activity in a businesslike manner and maintains
complete and accurate books and records, it may indicate a profit objective. Sec.
4
Petitioners did not identify any assets used in the Amway activity that they
expected to appreciate in value. Thus, this factor is not relevant to our analysis.
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1.183-2(b)(1), Income Tax Regs. However, if there is a lack of evidence that the
taxpayer’s records were used to improve the performance of a losing operation,
such records generally do not indicate a profit objective. Golanty v.
Commissioner, 72 T.C. at 430; see Campbell v. Commissioner, T.C. Memo. 2011-
42, 2011 WL 667973, at *5-*6. Keeping records only for purposes of preparing
tax returns is not indicative of a profit objective. See Rowden v. Commissioner,
T.C. Memo. 2009-41; Kinney v. Commissioner, T.C. Memo. 2008-287.
Although petitioners kept records of their Amway expenses, they did not
use those records to analyze their business performance or to prepare profit
projections, a break-even analysis, or a formal budget. Despite several years of
activity during which they realized cumulative net losses of $192,427, petitioners
failed to make any meaningful change in their strategy or tactics in an effort to
increase the likelihood of earning a profit. On this record, it is a fair inference that
petitioners used their records only to compute the amounts of losses attributable to
the Amway activity when preparing their tax returns. Considering all the facts and
circumstances, we conclude that petitioners did not conduct the Amway activity in
a businesslike manner.
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B. Expertise of Petitioners or Their Advisers
Preparation for the activity by extensive study of its accepted business
practices, or consultation with those who are expert therein, may indicate a profit
objective where the taxpayer carries on the activity in accordance with such
practices. Sec. 1.183-2(b)(2), Income Tax Regs. Petitioners had no experience in
direct marketing activities or operating a small business before Dr. Mikhail was
recruited as an Amway distributor in 2004. Petitioners obtained advice only from
“upline” distributors--persons who had a direct financial interest in the
maximization of petitioners’ sales volume, without regard to whether they would
realize a profit. See Ogden v. Commissioner, T.C. Memo. 1999-397 (Amway
“upline” distributors’ advice may be biased because of financial interest in
“downline” distributor’s sales volume), aff’d, 244 F.3d 970 (5th Cir. 2001).
Moreover, considering their lack of expertise, we find it noteworthy that
petitioners did not attempt to educate themselves by conducting an independent
market analysis or drafting a business plan for the Amway activity. This factor
weighs against petitioners.
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C. The Time and Effort Expended by Petitioners in Carrying On
the Activity
The fact that the taxpayer devotes substantial time and effort to carrying on
an activity may indicate an intention to derive a profit. Sec. 1.183-2(b)(3), Income
Tax Regs. Petitioners attended local Amway meetings weekly and monthly, and
they attended Amway conferences (often out of State) regularly. Nevertheless,
Dr. Mikhail candidly admitted that he was not able to devote sufficient time and
effort to the Amway activity during 2004 to 2007--the period of his medical
residency. As we see it, he likewise was not able to devote sufficient time to the
activity after 2007 taking into account his obligations as a full-time physician.
Petitioners acknowledged that Dr. Mikhail spent more time on the activity than
Mrs. Mikhail. Under the circumstances, we conclude petitioners did not spend a
significant amount of time on the Amway activity. See Kinney v. Commissioner,
T.C. Memo. 2008-287. This factor weighs against petitioners.
D. Petitioners’ Success in Carrying Out Other Similar or Dissimilar
Activities
The fact that the taxpayer has engaged in similar activities in the past and
converted them from unprofitable to profitable enterprises may indicate that the
activity in question was engaged in for profit, even though the activity is presently
unprofitable. Sec. 1.183-2(b)(5), Income Tax Regs. Petitioners had no prior
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experience engaging in a direct marketing distributorship or managing a small
business of any sort. This factor weighs against petitioners.
E. Petitioners’ History of Income or Loss
A series of losses during the initial or startup stage of an activity may not
necessarily be an indication that the activity is not engaged in for profit. Sec.
1.183-2(b)(6), Income Tax Regs.; see Golanty v. Commissioner, 72 T.C. at 427.
However, where losses continue to be sustained beyond the period which
customarily is necessary to bring the operation to profitable status, such continued
losses, if not explainable, may indicate that the activity is not engaged in for profit.
Sec. 1.183-2(b)(6), Income Tax Regs. The “goal must be to realize a profit on the
entire operation, which presupposes not only future net earnings but also sufficient
net earnings to recoup the losses which have meanwhile been sustained in the
intervening years.” Bessenyey v. Commissioner, 45 T.C. 261, 273-274 (1965),
aff’d, 379 F.2d 252 (2d Cir. 1967); see also Nissley v. Commissioner, T.C. Memo.
2000-178.
At the time of trial petitioners had never reported an annual profit in respect
of the Amway activity. To the contrary, they reported cumulative net losses of
$192,427 from 2005 through 2011. The modest gross receipts that petitioners
derived from the activity have been eclipsed by the substantial expenses they
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incurred over the years. Although petitioners testified that they believe the
Amway activity will eventually generate profits, we cannot discern on this record
any definitive trend to the upside for petitioners, and there certainly is no
indication that they are on their way to the level of profitability that would allow
them to recoup the substantial cumulative losses they have incurred to date. In
sum, petitioners’ history of consistent and substantial losses is indicative of a lack
of profit objective. See Golanty v. Commissioner, 72 T.C. at 427; Ogden v.
Commissioner, T.C. Memo. 1999-397. This factor weighs against petitioners.
F. Occasional Profits
The amount of profits in relation to the amount of losses incurred, and in
relation to the amount of the taxpayer’s investment and the value of the assets used
in the activity, may provide useful criteria in determining the taxpayer’s intent.
Sec. 1.183-2(b)(7), Income Tax Regs. As discussed above, petitioners’ Amway
activity has produced little in the way of annual receipts and no profits and
resulted in a sustained pattern of substantial losses. Petitioners’ inability to earn a
profit is indicative of their lack of profit motive. See Golanty v. Commissioner, 72
T.C. at 427; Nissley v. Commissioner, T.C. Memo. 2000-178. This factor weighs
against petitioners.
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G. Petitioners’ Financial Status
The fact that the taxpayer does not have substantial income or capital from
sources other than the activity may indicate that an activity is engaged in for
profit. Sec. 1.183-2(b)(8), Income Tax Regs. Substantial income from sources
other than the activity, particularly if the losses from the activity generate
substantial tax benefits, may indicate that the activity is not engaged in for profit.
Id.Dr. Mikhail is a successful physician, and his wages are the primary source
of petitioners’ income. During 2007, the final year of his residency, he earned
wages of $64,097. During 2008, 2009, 2010, and 2011 his wages increased to
$145,235, $157,621, $165,146, and $168,627 respectively. The losses that
petitioners have claimed from the Amway activity served to offset substantial
amounts of Dr. Mikhail’s wages, decreasing petitioners’ taxable income and
achieving substantial tax savings. This factor weighs against petitioners.
H. Elements of Personal Pleasure or Recreation
The presence of personal motives in carrying on an activity may indicate
that the activity is not engaged in for profit, especially where there are elements of
recreation or personal pleasure. Sec. 1.183-2(b)(9), Income Tax Regs.
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We have previously 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’” Campbell v.
Commissioner, T.C. Memo. 2011-42 (quoting Brennan v. Commissioner, T.C.
Memo. 1997-60).
The record shows that petitioners used their Amway distributorship as a
means to generate deductions for essentially personal expenditures and to enjoy
discounts on items they purchased for personal consumption. The availability of
consumer product discounts for personal use merchandise is a factor supporting
the conclusion that petitioners lacked a profit objective. See Campbell v.
Commissioner, T.C. Memo. 2011-42; Nissley v. Commissioner, T.C. Memo.
2000-178; Ogden v. Commissioner, T.C. Memo. 1999-397.
We also note that petitioners (1) traveled together to attend Amway
seminars and conferences in various cities, (2) took trips to New York and Texas
to discuss Amway with family and friends, and (3) hosted meetings that had a
social component. All things considered, we conclude that petitioners derived
personal benefits and pleasure from the Amway activity. This factor weighs
against petitioners.
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I. Conclusion
Considering all the facts and circumstances, we hold that petitioners did not
conduct the Amway activity in a businesslike manner and respondent has
demonstrated by a preponderance of the evidence that they did not engage in the
activity with the requisite profit objective during the taxable year 2009.
Consequently, we sustain respondent’s assertion, set forth in his amendment to
answer, that petitioners are not entitled to a deduction for the net loss of $39,919
that they reported on Schedule C in respect of the Amway activity for 2009.
II. Accuracy-Related Penalty
Section 6662(a) and (b)(1) and (2) imposes a penalty equal to 20% of the
amount of any underpayment of tax that is attributable to: (1) negligence or
disregard of rules or regulations or (2) any substantial understatement of income
tax. The term “negligence” includes any failure to make a reasonable attempt to
comply with tax laws, and “disregard” includes any careless, reckless, or
intentional disregard of rules or regulations. Sec. 6662(c). An understatement
means the excess of the amount of the tax required to be shown on the return over
the amount of the tax imposed which is shown on the return, reduced by any
rebate. Sec. 6662(d)(2)(A). An understatement is substantial in the case of an
individual if the amount of the understatement for the taxable year exceeds the
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greater of 10% of the tax required to be shown on the return or $5,000. Sec.
6662(d)(1)(A).
Section 6664(c)(1) provides an exception to the imposition of the accuracy-
related penalty if the taxpayer establishes that there was reasonable cause for, and
the taxpayer acted in good faith with respect to, the underpayment. Sec. 1.6664-
4(a), Income Tax Regs. The determination of whether the taxpayer acted with
reasonable cause and in good faith is made on a case-by-case basis, taking into
account the pertinent facts and circumstances. Sec. 1.6664-4(b)(1), Income Tax
Regs. Reliance on a tax professional may demonstrate that the taxpayer had
reasonable cause and acted in good faith where the taxpayer establishes that
(1) the adviser was a competent professional with sufficient expertise to justify the
taxpayer’s reliance, (2) the taxpayer provided the adviser with necessary and
accurate information, and (3) the taxpayer actually relied in good faith on the
adviser’s judgment. 3K Inv. Partners v. Commissioner, 133 T.C. 112, 117 (2009);
DeCleene v. Commissioner, 115 T.C. 457, 477 (2000).
With respect to an individual taxpayer’s liability for any penalty, section
7491(c) places on the Commissioner the burden of production, thereby requiring
the Commissioner to come forward with sufficient evidence indicating that it is
appropriate to impose the penalty. Higbee v. Commissioner, 116 T.C. at 446-447.
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Once the Commissioner meets his burden of production, the taxpayer must come
forward with persuasive evidence that the Commissioner’s determination is
incorrect. Id. at 447; see Rule 142(a); Welch v. Helvering, 290 U.S. at 115.
Respondent has discharged his burden of production under section 7491(c) by
showing that petitioners had a substantial understatement of income tax for 2009
within the meaning of section 6662(d)(1)(A).5
Before filing their tax return for 2009, petitioners had claimed deductions in
respect of losses attributable to the Amway activity for several years without
challenge by the Internal Revenue Service. Petitioners maintained records of their
annual Amway-related expenses and, on this record, we cannot say that those
records were incomplete, inaccurate, or in any way misleading. Petitioners relied
on Mr. Hienstand, a C.P.A., to prepare a complete and correct return for the year
in issue. Considering all the facts and circumstances, we conclude that there was
reasonable cause for, and petitioners acted in good faith with respect to, the
underpayment. Sec. 1.6664-4(a), Income Tax Regs. Consequently, we hold that
petitioners are not liable for an accuracy-related penalty for 2009.
5
Respondent originally determined a deficiency of $8,286 for the year in
issue--an amount that exceeds 10% of the tax required to be shown on the return.
The understatement of income tax attributable to the disallowance of a deduction
equal to petitioners’ net loss from the Amway activity for 2009 will exceed the
original deficiency amount.
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To reflect the foregoing,
Decision will be entered
under Rule 155.