Jon Taylor was a well-known researcher of multi-level marketing. One of his studies involved a telephone survey of over 200 tax preparers in Idaho and Utah. His findings were discussed in his 2012 book The Case (For and) Against Multi-Level Marketing (large download). While the data is old, the findings are still relevant. And I believe if the same study/survey was done today, it would yield the same results.

Dr. Taylor wrote about his experience:

A manager of H&R Block in northern Utah, told me that during his 25 years of doing over 12,000 tax returns a year between he and his group, they could not remember a single client who had reported a significant profit over any appreciable period of time in MLM! (One reported a sizable profit one year – but went bankrupt the next.)

Another accountant told me of a seminar company that trains tax preparers across the country. The topic of MLM’s often comes up in connection with “hobby losses,” and the concensus is that it is extremely rare to see profits from MLM participation. And a tax software developer, who dealt with thousands of tax preparers across the country, said he had asked about 100 of them if they had ever seen a profit reported from MLM participation. None had. This was out of a total of over a million tax returns.

Dr. Taylor did the telephone survey of tax preparers because he believed they were in the best position to know if profits occur in MLM. Because Utah is a hotbed of MLM activity, tax preparers there would likely have the most experience with MLM participants.

His findings confirmed what he suspected. A few people at the top of the pyramid are getting rich at the expense of thousands of downline recruits. The downline spends money on products in order to participate in the MLM, and they do so based on false representations of the income potential.

The tax preparers reported to Dr. Taylor:

• Almost no one was reporting profits form MLM on their tax returns
• They couldn’t remember anyone reporting significant MLM income

He found three counties in Utah where no MLM companies were based. He talked to 33 tax preparers there who had 14,400 clients all together in 2002. They estimated preparing over 300,000 tax returns over their careers. Many of their clients participated in MLMs at some time, but the tax preparers could not remember even one clinet reporting significant profits over an extended period of time.

For comparison, Dr. Taylor talked to 33 tax preparers in Utah County, where a number of MLM companies have their headquarters. He thought that people at the top of the pyramid were more likely to live near the MLM headquarters. All together, these tax preparers recalled 185 tax returns with significant profits from MLMs. These are the few rich distributors who get commissions from large downlines that live in other states. However, they represent a tiny percentage of the distributors.

The tax preparers who had clients at the top of the pyramid said things like:

• “It’s like any other business. Those who don’t make the effort will fail.”
• “The problem is that the majority of people who sign up and expect to make money don’t really know how to sell – or don’t ‘work the system.”
• “You have to work at it and be patient. If you stick with it, it can be very profitable.”

But those in the counties where there were no MLM profits to be had said things like:

• “There’s money to be made in MLM – at the top.”
• “I would never advise a friend to do MLM – unless he needs a tax write-off.”
• “It’s a scam.”
• “It’s a pyramid scheme.”

What does this prove? Once again, there are a handful of people who get to the top of the pyramid and profit. All of those profits are simply transfers of money from the thousands of people below them in the pyramid. Those thousands all lose money, as they can’t sell enough products or generate enough commissions from rec