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Respondent, in making the deficiency notice allocations,
relied on the fact that Hyatt International group hired staff
trained by Hyatt Domestic. Due to differences in their
respective operations, however, HIC did not gain by hiring Hyatt-
Domestic trained staff rather than experienced staff from other
similarly situated hotels. In other respects, the record does
not support a finding that the Hyatt International group received
anything else for which compensation would have been due to Hyatt
Domestic; e.g., training programs, innovative atrium and
restaurant designs, or manuals. In addition none of the parties'
trial experts focused on these specific items. Accordingly, we
find that respondent's determination with respect to these items
is arbitrary, capricious, and unreasonable.
2. Notice Determinations for Hyatt Domestic’s Income
Allocations Attributable to Royalties for Trade Names and Marks
For each of Hyatt Domestic’s taxable years, respondent
determined that 1.5 percent of the gross receipts each hotel
operated in the Hyatt International group be allocated to Hyatt
Domestic. Two of the notices contain explanations that the
adjustment is a royalty for the use of Hyatt trademarks and other
intangibles. One notice (for 1983, 1984, and 1985 taxable years)
contains the 1.5 percent adjustment, but states that it for use
of the trademark, without any reference to other intangibles.
For purposes of trial, respondent’s expert concluded that a
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