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individual, at some unspecified future date, a 20-percent
interest in Villa del Mar if the hotel operation proved
successful. Petitioner further issued a power of attorney to
this individual, authorizing him to act on petitioner’s behalf in
connection with the construction and operation of the hotel.
In 1986, construction of the 12-cabana-style villa complex
called Villa del Mar was completed and opened for business. The
12 cabanas contain two beds in each and are linked together by a
series of swimming pools. In addition to the cabanas, the
complex has a reception building.
Shortly after the 12-cabana complex had opened for business,
petitioner considered the small hotel to be very successful.
However, he was unable to realize a profit from the hotel’s
operation. As a result, petitioner began to consider the
possibility of building a much larger hotel on the Flamingo
Beaches to accommodate more guests and generate a larger profit.
In March 1988, petitioner commissioned and obtained a study
concerning the economic feasibility of expanding the 12-cabana
complex into a larger hotel. The expansion project would include
the construction of two separate three-story buildings or hotel
wings containing a total of 117 additional rooms. The expanded
hotel would be a four-star hotel.
Construction of the expansion began later in 1988.
Petitioner personally financed the construction with the
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