Two recent rulings by IRS Tax Court bring to light the serious discrepancy between claims of great wealth for distributors made by the AQMOs and their leaders, and the sorry reality. While distributor leaders claim that huge incomes are attainable by anyone who is willing to "plug in" to the "system" and work hard, recent IRS Tax Court cases paint a very different picture.

First, according to Amway's own SA4400, a document that the FTC has ordered Amway to give to all prospects when they see the Sales & Marketing Plan, distributors just don't make money. The "average" bonus for an "active" distributor is only $88/month, and fewer than 50% of distributors are "active." This brings the real average for all distributors to less than $44/month.

Second, nowhere in Amway's literature, or in any of the literature or verbal information provided by distributors to their prospects is there any bona fide, quantifiable, verifiable information regarding either income or expenses of running an Amway distributorship.

In 1981, the Wisconsin Attorney General's office conducted the only legitimate study on distributor incomes. By examining the tax returns of all Wisconsin Amway distributors, they found that Direct Distributors were showing a net loss of $918 each year. This figure is much higher today, as borne out by the Tax Court's findings in the Nissley and Ogden cases.

In both those cases, distributor couples were showing significant losses related to their Amway distributorships. The Nissleys, both CPAs, had losses over an eight-year period in excess of $187,000. The Ogdens' losses were more than $59,000 in three years.

In both cases, the tax court ruled that the deductions were not allowable as "business expenses" because neither couple demonstrated that they were conducting their "business" in such a way as to generate a profit. Instead, the court ruled that the defendants were engaged in social hobbies, and attempting to offset significant portions of their earned income through their bogus "business deductions." This ruling was made in spite of claims that the Nissleys devoted up to 80 hours per week, and the Ogdens about 35-40 hours per week, to their Amway involvement.

The failure rate among Amway distributors is in excess of 99%. It would seem obvious to the meanest intelligence that a business must show a profit in order to continue. Yet that fact seems to have escaped thousands of distributors, who, listening only to the bad advice of their upline, keep pumping money into the "system" while beggaring themselves. Perhaps, if the Tax Court continues to make sensible rulings in these cases, distributors will eventually catch on to the realities of their involvement. Whatever it is, it is not a business.

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This page updated Jun-02-00