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Under the addendum agreement, Rainbow Reservations collected
the rent from petitioners' tenants and placed the funds into a
trust account. Rainbow Reservations then deducted from the rental
proceeds its commission and the costs of maid or other services it
provided. At the end of each month, a check representing the net
proceeds from the rental of the Maui condo was forwarded to
petitioners. As part of this process, Rainbow Reservations
maintained records of the rental proceeds for petitioners, and
issued a Form 1099 to petitioners at the end of the year.
Although the addendum agreement provided that Rainbow
Reservations would receive a 20-percent commission, Rainbow
Reservations actually received a 25-percent commission during 1993
as a result of its performing special services for petitioners.
Additionally, Rainbow Reservations was permitted to rent
petitioners' Maui condo directly during times when the condo was
vacant, subject to petitioners' approval. For those bookings,
which only occurred once or twice during 1993, Rainbow Reservations
earned a 40-percent commission.
As part of its front desk services, Rainbow Reservations
issued keys and parking permits to petitioners' tenants (unless
petitioners made other arrangements). The front desk was also
available for petitioners' tenants to answer questions, obtain
additional linens, or receive complaints.
The Maui condo was rented for 22 weeks during 1993, with an
average stay for a tenant of 6.5 days. Petitioners' base charge
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Last modified: May 25, 2011