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taxes. Regardless of whether the income is HESA’s or HHK’s, it
is not HIC’s income.23 See Columbian Rope v. Commissioner, 42
T.C. 800, 812-813 (1964). Accordingly, respondent’s allocation
concerning the Mexican hotels is an abuse of discretion and is
not sustained.
BVS opined that the revenue for the Hyatt Kingsgate Sydney
should be allocated from HS to HHK. Due to favorable tax
treaties, the Hyatt Kingsgate Sydney’s fees were assigned to HS,
although the hotel was supervised by HHK. While this allocation
may have been part of the BVS profit-split analysis, it has no
impact on and is neutralized by our holdings concerning HIC’s
income. See National Semiconductor Corp. v. Commissioner, supra.
In addition to those hotels for which BVS recommended 100-
percent revenue allocation, smaller percentages were recommended
where some other entity was the contract source or provided some
small service. This appears to be a new matter that was not
addressed in the deficiency notices. The parties’ broad-based
approaches failed to address the specific details concerning each
hotel involved in these smaller allocations. Irrespective of the
parties’ approach, allocations from one to another foreign entity
would not directly or adversely affect HIC’s U.S. income. As for
23 HIC (Mexico) was, at that time, a 49-percent owner of
HESA. Any amount that would be paid from HESA as dividend income
to HIC (Mexico), a U.S. subsidiary of HIC, would be included in
the U.S. consolidated return with HIC.
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