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and the Hyatt International group’s contribution of capital and
personnel. Third, BVS employed a royalty equal to 33 percent17
of management fees (after the first above-described adjustment)
that was to be allocated from HHK and HS to HIC. This royalty is
for trade names and marks and to “provide a profit for the
reservations activities, cover corporate overhead and subsidize
the development activities.” In addition, the royalty from HHK
and HS was also intended to fund or pass on the cost of the
royalties that would be due from HIC to Hyatt Domestic. Fourth,
BVS concluded there should be an allocation from HHK and HS to
HIC, described as a profit split, of generally 50 or 65 percent
(depending on the year) of the operating income remaining after
expenses and the above royalties are deducted. BVS intended the
profit split to cover the financial guaranties and differences in
assets, with HIC being considered the owner of the intangibles
and the financial capital.
In deciding whether the Commissioner’s determination is
reasonable, courts focus on the reasonableness of the result, not
on the details of the methodology used. See Seagate Tech., Inc.,
& Consol. Subs. v. Commissioner, 102 T.C. at 164. In a
particular case, the Commissioner’s deficiency notice
17 It was contended that the 33 percent of the management
fee rate was the equivalent of 1 percent of gross hotel revenues
in comparison to Mr. Burt’s 1.5 percent rate.
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