- 77 -
for Hyatt Domestic’s 9 taxable years. This contrasts with the
nearly $46 million 9-year total set forth in the deficiency
notices. Respondent’s trial position represents less than 40
percent of the original deficiency notice determinations. Those
factors, coupled with the change of methodology and experts
supports our holding that respondent’s deficiency notice
determinations for the Hyatt trade names and marks were
unreasonable and an abuse of discretion as to respondent’s
determinations regarding royalty allocation to Hyatt Domestic.
See National Semiconductor Corp. v. Commissioner, T.C. Memo.
1994-195.
3. Allocations to HIC from Its Subsidiaries
We next consider whether there was an abuse of discretion in
respondent’s royalty income allocations to HIC for its
subsidiaries’ use of the Hyatt trade names or marks. HIC did not
receive any portion of the management fee income from the hotels
as operating revenue.20 Beyond expenses related to chain
services that were charged to the hotels through HCS, HIC did not
charge its subsidiaries for services provided. During 1983,
however, there was a one-time “catch-up” charge on HHK’s books
for HIC’s overhead expenses from prior years.
20 HIC did, however, receive dividends from HHK and HS.
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