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Respondent’s adjustments to HIC’s income involve three types
of allocations: (1) Royalty to HIC for its subsidiaries’ use of
trade names and marks, (2) allocation to HIC of its subsidiaries’
management fee revenues, and (3) allocation of management income
to reflect HIC’s relative contribution vis-a-vis the subsidiary
in operating the individual hotels. Respondent’s royalty income
allocations for trade names and marks from HIC’s subsidiaries to
HIC are based on the same reasoning and were at the same
percentage as allocated from HIC to Hyatt Domestic. Our
reasoning for the Hyatt Domestic/HIC royalty allocation also
applies to HIC and its subsidiaries. Accordingly, we hold that
respondent’s determinations involving royalty income allocations
to HIC from its subsidiaries were an abuse of discretion.
Respondent also determined that the management fee income
reported by HHK, HS, and HP above a “normal return” per hotel,
should be allocated to HIC. In computing the subsidiary income
allowed, only those hotels respondent determined to be actually
managed by the respective subsidiary received an allowance.
Accordingly, some portion of the allocations represented income
from HIC’s subsidiaries with respect to those hotels that
respondent decided were not managed by the subsidiary. Due to
respondent’s selectivity and the use of average allowances rather
than actual hotel revenues, there is no way accurately to
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