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services that respondent allowed on a per-hotel basis times the
number of hotels managed. The determinations of the per-hotel
amounts were based on the reports of respondent’s prenotice
economists, Dr. Joseph Mooney (Dr. Mooney) and David Burt (Mr.
Burt). In addition, respondent determined that the subsidiaries
did not manage all of the hotels that remitted fees to them, and,
therefore, the number of hotel allowances was limited
accordingly.
At trial, the reports of the above-referenced in-house
economists were not offered or relied on by respondent. Instead,
respondent relied on Business Valuation Services’ (BVS) opinion,
in which a profit-split method15 of determining allocations was
utilized to produce an arm’s-length royalty for use of the trade
names and marks and arm’s-length fees for services performed.
The total allocations, as recommended in the BVS report, are as
follows:
15 “The profit split approach divides the related parties’
combined revenues based on an ad hoc assessment of the
contributions of the assets and activities of the commonly
controlled enterprises.” Eli Lilly & Co. v. Commissioner, 856
F.2d 855, 871 (7th Cir. 1988), affg. in part, revg. in part on
other issues and remanding 84 T.C. 996 (1985).
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