https://www.taxnotes.com/research/federal/court-documents/court-opinions-and-orders/hyatt-must-recognize-loyalty-rewards-program-income/7hdsnApparently, Hyatt collected a 4% to 4.5% fee from hotels whenever a customer earned points during their stay, in addition to the regular royalty fees for being part of Hyatt. Hyatt would use this “fund” to reimburse the hotels when free nights were redeemed, and to pay other
miscellaneous expenses
Hyatt completely disregarded this fund for income tax purposes. They did not include the revenues as income, and did not deduct any expenses. They did include the income in their annual audited financial statements. (Of course, let’s show our shareholders how well we’re doing, but let’s keep the IRS out of it.)
IRS demanded approximately $70mm in taxes, going back all the way to the start of the program in 1987.
Court ruled (partially) in favor of the IRS. (But not going back to 1987)
What I find very interesting, is the % of revenue hotels were charged each time points were earned.
