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Respondent, in the notices of deficiency addressed to
petitioner AIC, determined that the income of its subsidiary HIC
income should be increased as follows:
Taxable year Management Total of
ending Trade name fees these items
Dec. 31, 1976 $982,000 $1,601,467 $2,583,467
Dec. 31, 1977 1,086,000 2,048,740 3,134,740
Dec. 31, 1978 1,495,000 2,296,218 3,791,218
Dec. 31, 1979 1,877,010 3,300,716 5,177,726
Dec. 31, 1980 3,094,935 5,070,618 8,165,553
Dec. 31, 1981 4,157,250 4,852,581 9,009,831
Dec. 31, 1982 4,838,580 4,946,904 9,785,484
Dec. 31, 1983 5,046,810 2,642,440 7,689,250
Total 22,577,585 26,759,684 49,337,269
The November 18, 1994, notice of deficiency reflecting AIC’s 1976
through 1978 taxable years contains the following explanation for
the above-scheduled adjustments:
Royalty Income-Trade Name
You engaged in transactions with your subsidiaries,
Hyatt of Hong Kong, Ltd. (HHK), Hyatt of Singapore, Ltd
(HS), and Hyatt of Panama (HP) under which the
operating subsidiaries were permitted to use the
“Hyatt” trademarks and trade names, to which you held
an exclusive license outside the territorial United
States. Under section 482 of the Internal Revenue Code
and Treasury Regulation section 1.482-2(d), it is
determined that an arms’-length royalty equals 1.5% of
gross revenues of HHK, HS and HP for each of the years
1976, 1977 and 1978. * * *
Management Fee
It is determined that your attribution of substantially
all management fees for the operations and management
of foreign Hyatt hotels to Hyatt-Hong Kong, Hyatt-
Singapore and Hyatt of Panama, respectively, fails to
clearly reflect Hyatt International Corporation (HIC)
income for 1976, 1977 and 1978. Pursuant to Internal
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