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expenses. Hotel owners were each apportioned an amount of HCS’s
expenses that were incurred in connection with the marketing and
reservations service. Owners who chose to use the IPS’ design
services paid IPS a fee for the services. IPS’ fees were set
based on estimated costs and, for most of the taxable years in
issue, IPS’ expenses exceeded its revenues. Accordingly, the
preopening and operating expenses and IPS fees were not borne by
the Hyatt International hotel management subsidiaries. The hotel
owners paid management fees directly to the hotel management
subsidiaries.
We consider four categories of section 482 income
allocations:
(1) Management fee revenues from one subsidiary of the
Hyatt International group to another or, most commonly, to HIC,
based on respondent’s postulation that the latter entity was
wholly or partially “responsible for” the management or operation
of the hotel that generated management fees;
(2) Royalties from HIC to Hyatt Domestic for the use of the
Hyatt trade names, marks, and intangibles;
(3) Royalties from HHK and HS to HIC for the use of the
Hyatt trade names and marks; and
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