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$100,000 annual fee for a Saudi Arabian hotel. Dr. Mooney,
considering these contracts with unrelated parties as the best
evidence of a normal return for HHK, set the allowable fees at
$75,000 per hotel for 1979, $87,500 for 1980, and $100,000 for
1981. He recommended that any income above the allowable fees be
allocated from HHK to HIC.
Mr. Burt, an industry economist employed by the IRS, was
assigned the task of analyzing whether and the extent to which
section 482 allocations of income or deductions should be made
among and between Hyatt Domestic, HIC, and certain subsidiaries
of HIC, attributable to the use of the Hyatt trade names,
trademarks, and/or other intangibles. Mr. Burt prepared two
reports that were included as part of the revised International
Examiner’s Report for the taxable years at issue. Mr. Burt’s
reports served as one of the bases for respondent’s deficiency
notice determinations allocating income from HIC to Hyatt
Domestic and from certain subsidiaries of HIC to HIC as a result
of the use of the Hyatt trade names, trademarks, and/or other
intangibles.
In the first undated report (Burt report one), for the 1979
through 1981 tax years, Mr. Burt opined that 1.5 percent of gross
hotel revenue was an arm’s-length royalty for the use of the
Hyatt trade names and marks. Mr. Burt’s use of the 1.5-percent
rate derived from franchise royalties rates charged by four
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