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BBCA and TMC decided to simplify the relationships between the
unit owners and TMC by negotiating for individual written
management contracts between each unit owner and TMC. The
contracts were modeled after the policies that BBCA's committees
had developed in preceding years. With the exception of a few
unit owners who lived at Bluefin Bay all year, most of the unit
owners entered into management contracts with TMC.
Petitioners' management contract with TMC was effective
January 1, 1991, through the taxable years in issue. Under the
management contract, TMC was appointed as the exclusive rental
agent for petitioners' unit. Petitioners were required to
specifically reserve their unit in writing for the days which
they intended to personally use it. In the event petitioners
failed to properly notify TMC of their intended use, rental
arrangements previously made by TMC with other guests would hold
priority over petitioners' personal use, unless the guests could
be assigned to another, comparable unit.
The management contract provided for TMC to receive 45
percent of the gross rental proceeds from petitioners' unit in
exchange for its services. Under the management contract, TMC's
duties included, but were not limited to, managing reservations,
checking in and out guests, providing housekeeping services,
collecting rents, generating financial reports, conducting damage
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