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Under the circumstances of this case, respondent’s
substitution or change of methodology, alone, does not result in
our finding or holding that respondent’s determinations are
arbitrary, capricious, or unreasonable. There were certain
similarities in the approaches and methodologies used to
formulate respondent’s deficiency notice and those used by
respondent’s trial experts.
C. Is Respondent's Determination in Other Respects
Arbitrary, Capricious, and Unreasonable?
Background
Next, we consider petitioners’ contentions that respondent’s
determinations were, considering all the circumstances, an abuse
of respondent’s discretion. It appears that a primary basis for
respondent’s section 482 deficiency notice allocations was the
belief that HIC bore the majority of the consolidated expenses of
the Hyatt International group and that HHK and HS received the
majority of the revenue. Respondent compared petitioners’
profitability ratios to those of other hotel companies. In that
regard, the Hyatt International group’s accounting system does
not include expenses paid by the owner, whereas other hotel
companies that respondent treated as comparable, used
combinations of franchise, lease, and management contracts.
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