Lucian T. Baldwin, III - Page 33

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          conclusion that Granot Loma was used in an activity engaged in              
          for profit.                                                                 
               While it is certainly true that LFI maintained books and               
          records of its activities, the record is devoid of any credible             
          evidence that the books and records were used to make informed              
          business decisions regarding the operation of a business at                 
          Granot Loma.  See Golanty v. Commissioner, 72 T.C. 411, 430                 
          (1979) (holding that a taxpayer’s books and records should enable           
          the taxpayer to cut expenses, increase profits, and evaluate the            
          overall performance of the operation), affd. without published              
          opinion 647 F.2d 170 (9th Cir. 1981).  LFI did not engage in any            
          market studies or meaningful research regarding the likelihood of           
          operating Granot Loma as a commercial lodge for profit.  It did             
          not set the per capita charges billed to petitioner’s other                 
          companies by analyzing what was necessary to turn a profit or               
          even by analyzing LFI’s total operating costs.  As best we can              
          ascertain from the record, LFI made no meaningful effort to                 
          evaluate the cost efficiency of capital expenditures or to cut              
          the costs of “operating” the lodge.                                         
               Neither petitioner nor any of his principal advisers had any           
          material experience operating a hotel, motel, or other                      
          commercially viable lodging establishment.  Some of petitioner’s            
          equipment and system suppliers had commercial experience but only           
          insofar as the design and use of such equipment and systems were            

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