Usana Health Sciences (NASDAQ: USNA) claims to be a vitamin company that distributes its products through a multi-level marketing business model. But a report released by Barry Minkow and his Fraud Discovery Institute in March suggested that the vitamins were merely incidental to the illicit pyramid scheme that Usana was operating, and the stock plunged.
But here's something new to consider: Based on my investigation, it appears that some Usana distributors are marketing the Usana "business opportunity" as something else entirely: a tax shelter. For example, a New Zealand Usana distributor with the URL uniquehealth.usana.com writes, "... the fact is a USANA business can save you up to $6,000 plus in a tax return every year. This is not just $6,000 in extra deductions, but an extra $6,000 in YOUR pocket each year - regardless if part-time or full-time." The distributor also gives a list of the potential deductions including automobile expenses, a portion of your mortgage, phone accounts, child care, "pay your kids to work for you, and write it off," and 100% of initial start-up costs.
Uniquehealth is not alone. My investigation of the websites of dozens of Usana distributors found claims of too-good-to-be-true tax savings were widespread. Usana doesn't make these claims on its own website, but the fact that numerous distributors do raises questions about the real reason that people become Usana distributors.
Of course, entrepreneurs are allowed to deduct related expenses for home-based businesses, but according to New Zealand's tax guide for direct selling, following some of the suggestions would appear to be fraudulent. For instance, "You can't claim private living expenses, nor can you claim the cost of purchasing most assets such as motor vehicles and computers." U.S. tax laws are similar in this regard.
The tax pitch also raises a larger question: Are Usana distributors really entrepreneurs? In a recent conference call, Usana CFO Gil Fuller told investors that only 12% of distributors sign up to make money. If that's the case, why all this emphasis on tax savings?
The New Zealand distributor is part of a larger USANA distributor group called TeamXcell. Uniquehealth's site goes on to ask the reader "Where else can you use 'Health Supplements, Skin and Personal care products, even hair care products & toothpaste all (Patent) Paraben & Chemical FREE, (see below News report) and claim them against your 'TAXES'. Well you can with Usana Health Science as a Home Business."
What about deducting products you use? According to the New Zealand tax guide, "You must make an adjustment for any goods from your opening stock that are used privately. Keep full records of the value of goods you take for personal use, or for family and friends. Show the cost of these goods as drawings, and don't include them in your purchases or sales figures."
Another USANA distributor site, HealthtoFreedom.com, tells prospects that "... the potential tax advantages alone are strong enough for many to consider joining USANA as an Independent Associate with the Health to Freedom team. Even in the beginning stages while you are building up your business, the potential tax advantages are still there for you to use."
The idea of embarking on a business venture for the tax benefit is, almost by definition, illegal. "If the sole purpose of a business is to avoid taxes, that would be tax evasion," says Doug Carmichael, former chief auditor for Public Company Accounting Oversight Board. He was also instrumental in the FTC's successful effort to shut down Equinox International, a multi-level marketing program with over $200 million in sales.
According to the IRS's examination techniques, "The test to determine whether a taxpayer conducted an activity for profit is whether they engaged in that activity with an objective of earning a profit. Although a reasonable expectation of profit is not required, the profit objective must be bona fide, as determined from a consideration of all the facts and circumstances."
It sounds like only 12% of distributors (the ones Fuller said want to make money) would be able to claim tax write-offs as a results of their USANA businesses. The IRS also says "that an activity is presumed to be engaged in for profit if the gross income derived from the activity exceeds the deductions attributable to the activity for three or more of five consecutive taxable years." Data from the Fraud Discovery Institute has shown that very few Usana distributors generate much, if any, gross income. Usana can't have it both ways. If the vast majority of distributors don't make money, Usana doesn't really offer tax advantages for all but a few people.
Usana claims that it's selling vitamins. Then a bunch of people said it was really selling a pyramid scheme. Now we find out that some distributors are marketing the company as a tax shelter. What's next? Usana Health Sciences as the way to heaven?
More USANA Health and Sciences news
Kevin Kelly: "Heard on the Street" knocks USANA
Zac Bissonnette: Oh snap! Barry Minkow fires back at Usana Health Sciences
Zac Bissonnette: Forbes slams Usana Health Sciences (USNA)
Zac Bissonnette: NZ National Business Review slams USANA Health Sciences (USNA)
Zac Bissonnette: USANA has a product, so it's not a pyramid scheme?
Zac Bissonnette: Is Baghdad Bob working for USANA Health Sciences?











Reader Comments (Page 1 of 1)
8-23-2007 @ 1:18PM
pel said...
Zac, You need to brush up on your investigative skills before reporting if you ever want to be a real journalist.
I went to the website and on the first page where you claim "You can't claim private living expenses, nor can you claim the cost of purchasing most assets such as motor vehicles and computers." The site says automobile EXPENSES. It doesn't say purchasing a new car. You can claim mileage for business in ANY home business. Also you CAN claim part of your home if it is used for business. Where were you in 1992,93,94,95,96,97,98,99,2000,2001,02,03,04,05,06??????
NOW? Now your are knocking this company? You need to look at the big picture. Maybe 12% of the people are making money. Are you making what Charles Gibson, Diane Sawyer, Anderson Cooper make? I am confident you are not. What is the actual percentage of journalist all over the world making the big money? Find that out for us. How about Hollywood? I was hoping to be a lead role in the next big Spielberg movie, but Leonardo DiCaprio has gotten the part. It must all be a scam!!!! Lets go after Hollywood!!! Maybe you should go after ABC Studios and Disney for scamming you into believing you are a worthy reporter. You are still reporting right? Now back to the 12% issue. If there are 50,000 associates and 12% are making the "BIG" money, that's 6,000 people. If they are hard working and help others to do the same don't the numbers go up? Now 100,000 people and 12,000 are making money. People who have maybe lost their homes due to layoffs, divorce, death, whatever their reason may be. As a reporter you know that the banks aren't there for us! People are losing their homes at a staggering rate and what are they to do? Yes, I will admit, there are some people looking for a get rich quick answer, they join and they make nothing. THEY have failed, not the company. You know that you must work hard in any industry to make the big money.
8-23-2007 @ 8:44PM
sny said...
Have you ever taken these products? Do you know how many people benefit from the products? Do you know how many people enjoy doing this business by sharing the products and helping other people to improve their quality of lives? The so called "Research" you've made is just a junior's paper work, ONLY!
8-24-2007 @ 2:22PM
BMG said...
Zac -
Your article hits home because this is one of the FIRST things that was said to me by the Usana rep that recruited me into Usana (though I have since pulled myself out). I was told that I could write off a number of expenses, basically just as you outlined in your article and which are obviously stated on some of the reps websites that you cited, and at the time I found it incredible. I was told that I could write off the expenses of having my two young kids "work" (or appear to work) for me and was further told that that was the way to make a lot of money w/Usana (along with recruiting) and gain valuable money back into my own pocket (from the IRS). And this from people who are making 350+K a year with Usana (verified).
The more I read about Usana and its corporate "structure" the more sickened I become... I found it hard to swallow the MLM not being a pyramid in the first place so that coupled with information that has been rushing out about the executives within the corporation convinced me that Usana is not "clean" and I ended my relations with the company abruptly.
I will not be so blinded by anyone's products - no matter how good they might be - that I cannot see the corruption being perpetrated by the company executives. Usana executives are making money hand over fist at the expense of good people who blindly support it for inane reasons. This company has red flags sticking up all over the place and, yet, so many are willing to go down with/for it; I can't understand why...
Another thing... I know a lot of people make the statement that Usana makes the "best of the best" of vitamin products but I've been doing a lot of research using the Comparative Guide to Nutritional Supplements (previous and current volumes), the web, published reports on vitamins, etc. and, whether people want to face the reality or not, there ARE comparative products with the same ingredients that available for a lot less monthly cost to the consumer. One manufacturer/distributor is Douglas Laboratories and their products are very highly rated with Usana's products. As with most products there are alternatives - in other words there are other choices. AND Douglas Labs isn't under any type of investigation by any USG agency, their quality standards are higher than Usana's, they aren't an MLM operation, and you can purchase their products retail. Simple, neat and clean.
8-24-2007 @ 2:26PM
Mark S. said...
'The idea of embarking on a business venture for the tax benefit is, almost by definition, illegal.'
Almost illegal? Perhaps like driving 100kph in a 100 kph zone?
How about Negatively Gearing Real estate? Isn't that a business venture embarked upon for tax benefit?
I can only assume you had a tight deadline to meet on this article, Zac.
8-27-2007 @ 11:26PM
usana sucks said...
lol It seems like the USANA brainwashed fanatics doesn't like you to expose their fraudulent company.
9-29-2007 @ 11:45AM
Klaus said...
Come on Zac, Do Your Homework. Does This Sound Like A Pyramid Scheme?
USANA Accolades and Track Record:
1) USANA Health Sciences Partner with Sony Ericsson Women’s Pro Tennis Circuit as the Official Nutritional Supplement Supplier
2) One of the very few Nutritional supplement manufactures to voluntarily produce to Pharmaceutical Good Manufacturing Practices, allowing products to be listed in the USA Physicians Desk Reference and CDN Pharmaceutical Compendium
3) Official Nutritional Supplement Supplier to the USA and CDN Olympic Speed Skating Teams
4) Tested by three highly respected independent labs for purity, potency to meet the guidelines of the World Anti Doping Agency for professional and amateur sports
5) Dr. Christiane Northrup MD, is highly respected for issues on women’s health endorses and is now associated with USANA Health Sciences. She appears regularly on TV and Radio
6) Bernice King, daughter of the late Martin Luther King Jr. endorses USANA Health Sciences and Dr. Wentz.
7) USANA enhances existing scientific partnership with the Linus Pauling Institute at the University of Oregon.
8) 15 years in business and only 7 complaints with the BBB in all of NA, which were all resolved amicably.
9) 1.6% average return rate on all products sold to active associates and preferred customers, which is well within the norm for a healthy consumer goods company
10) Out of more then 500 nutritional supplements tested, USANA was rated #1 by Lyle McWilliams book “Comparative Guide to Nutritional Supplements” 3 years in a row!
11) Only company to have a $1 Million Dollar Athlete Guarantee (World Anti Doping Agency Guidelines)
12) Best of State for Utah - Nutritional Supplements three years in a row! There are over one hundred nutritional supplement manufactures in the State of Utah, so this is quite an honour.
Lucky 13) USANA Health Sciences have a loyal CONSUMER base of 150,000 associates and 80,000 preferred customers in 14 countries around the world for sales of almost a half billion per year and they are growing. Revenues have increased for 20 straight consecutive quarters! The health pack 100 is not even close to being the top seller as Minkow states. It is still the Essentials at $39 for a one-month supply, which is what I have used for the past 10 years. It’s very competitive to vitamin and mineral supplements in its class
I could go on, but hopefully I’ve made my point. Illegal pyramid schemes would not invest this much effort into their brand, because illegal pyramids don’t usually have a brand. USANA is becoming more and more respected as a brand and for the quality in which it stand for. They are best in class and so are the 100 people that work for this company. Even if there is compensation or bonuses for endorsements, I’m sure these people and organisations have certain standards integrity and ethics that must be met in order to align with USANA.
I would guess that Minkow and his “un-known client” wanted to make money by downgrading USANA Stock (Put Options), by going to the press and feeding innuendo of fraud and twisted truths on the company and management (this is another issue altogether). Once the stock tumbles, buy low for the big USANA Stock Rebound. USANA is above board and a legal Network Marketing Entity. I don’t think Minkow thought that USANA would fight back, boy was he wrong. Once USANA’s Legal team has shellacked Minkow, he’ll owe allot more then the $26 million still in arrears from his past frauds. This is blatant stock manipulation to a tee. I hope his client has deep pockets, because Minkow may need a very big handout.
Thanks for allowing me to express my opinion on this issue.
10-01-2007 @ 1:38PM
Klaus said...
Come on Zac, Do Your Homework. Does This Sound Like A Pyramid Scheme (See Below)? Minkow and his Bandits wanted to make money by downgrading USANA Stock (Put Options) and buying low for the big USANA Stock Rebound. USANA is above board and a legal Network Marketing Entity. I don’t think Minkow thought that USANA would fight back, boy was he wrong. Once USANA’s Legal team has shellacked Minkow, he’ll owe allot more then the $26 million still in arrears from his past frauds. Once a Con, always a Con. This is blatant stock manipulation to a tee.
USANA Health Sciences Teams up with Premiere Athletes of Sony Ericsson WTA Tour; For First Time in Professional Tennis History, Offers $1 Million Purity Guarantee
Last Update: 5:27 PM ET Aug 23, 2006
SALT LAKE CITY, Aug 23, 2006 (BUSINESS WIRE) -- USANA Health Sciences Inc. (USNA :
USANA Inc., a leading developer and manufacturer of nutritional supplements, and the Sony Ericsson WTA Tour, the world's leading global sport for women, announced today the signing of a landmark agreement that will provide Tour players with vitamins and health supplements that are backed by an athlete guarantee of purity from any substances prohibited by the World Anti-Doping Agency (WADA).
"Up until now, the inability of our players to take vitamins and health supplements without fear of accidentally ingesting a prohibited substance has been a real issue," said Larry Scott, CEO of the Sony Ericsson WTA Tour. "In USANA, the Tour has found a manufacturer that can not only meet the Tour's and WADA's rigorous anti-doping standards, but one that is also willing to back it up with both athlete and Tour guarantees. This is fantastic news for players, and a critically important step forward in ensuring player health while maintaining the strict anti-doping standards that are necessary to continue to ensure that women's tennis remains a clean sport."
Under the terms of the agreement, should any Sony Ericsson WTA Tour athlete test positive for a substance prohibited by WADA due to her use of USANA products, USANA will pay the player twice her prize money earnings from the prior year, up to $1 million. Additionally, as part of its purity guarantee, USANA has warranted to the Tour that products supplied as part of the player program do not contain any prohibited substances. USANA has manufactured nutritional supplements since 1993 and has a history of working with elite athletes, including members of the U.S. and Canadian Olympic Speed Skating Team.
"One of USANA's primary goals, since the beginning, has been to afford people around the globe the opportunity of attaining true optimal health," said Dave Wentz, president of USANA Health Sciences. "For over a decade, world-renowned athletes have trusted their health to USANA. And today, we are proud to align ourselves with the elite competitors of the Sony Ericsson WTA Tour -- united in a joint effort to provide pure, high-quality supplementation for the athletes of today, and ensuring a focus of long-term health for the athletes of tomorrow."
About USANA
USANA develops and manufactures high-quality nutritionals, personal care, and weight management products that are sold directly to Preferred Customers and Associates throughout the United States, Canada, Australia, New Zealand, Hong Kong, Japan, Taiwan, South Korea, Singapore, Mexico, the Netherlands, and the United Kingdom. More information on USANA can be found at http://www.usanahealthsciences.com.
SOURCE: USANA Health Sciences
USANA Health Sciences
Riley Timmer, 801-954-7922 (Investor Relations)
Riley.Timmer@us.usana.com
or
Sony Ericsson WTA Tour
Andrew Walker, 727-871-5666
awalker@wtatour.com
Copyright Business Wire 2006
10-01-2007 @ 1:57PM
Klaus said...
Sorry, Typo from my last post, USANA actually employs around 1000 people +/- Not 100 as I wrote in the above comment.
Klaus