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Examiner’s Report for the taxable years 1976 through 1981. The
Mooney report served as one of the bases for respondent’s
deficiency notice determinations (addressed to petitioner AIC)
that HIC’s income be increased by allocations of income from
certain of its subsidiaries.
The Mooney report, for the 1979 through 1981 tax years,
credited HIC with the development, implementation, and monitoring
of the Hyatt International management system (policies and
procedures) and of a set of standards for the operations of its
hotels. It contained the statement that “Without these efforts
and intangible assets developed by HIC, HHK could not operate as
a hotel management firm.” In deciding how to allocate income
between HHK and HIC, Dr. Mooney also determined a “normal return”
amount. He further opined that amounts in excess of his
determined “normal return” should be attributed to the intangible
assets and services provided by HIC.
To compute the “normal return”, Dr. Mooney first reviewed a
1980 study by James J. Eyster (Eyster study) containing the
information that chain operators generally require a per-hotel
management fee ranging from $65,000 to $120,000. Dr. Mooney,
however, relied on two Hyatt International contracts that
specified minimum management fees: one dated August 24, 1979,
providing for a $75,000 minimum annual fee per hotel in the
Philippines, and the other dated April 24, 1981, providing for a
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