Hyatt Hotels Corporation & Subsidiaries v. CIR

── Hyatt Hotels Corporation & Subsidiaries v. CIR ── Court: Court of Appeals for the Seventh Circuit Date: April 22, 2026 Category: General In the United States Court of Appeals For the Seventh Circuit ____________________ No. 24-3239 HYATT HOTELS CORPORATION & SUBSIDIARIES, Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee. ____________________ Appeal from the United States Tax Court. No. 13858-17 — Joseph W. Nega, Judge. ____________________ ARGUED SEPTEMBER 16, 2025 — DECIDED APRIL 22, 2026 ____________________ Before KIRSCH, JACKSON-AKIWUMI, and MALDONADO, Circuit Judges. KIRSCH, Circuit Judge. Hyatt Hotels operated a loyalty pro- gram that allowed members to earn points by spending money at Hyatt-branded hotels. The program’s expenses were paid out of a centralized fund, which Hyatt managed and to which all Hyatt-branded hotels—including those owned by third parties in management or franchise agree- ments with Hyatt—were required to contribute. The fund also derived some income from investing in securities and selling 2 No. 24-3239 rewards points directly to customers. The Internal Revenue Service contends that Hyatt should have reported income to the fund as income to Hyatt; the tax court agreed. On appeal, Hyatt renews its argument that these payments into the fund weren’t its income. If they were income, Hyatt claims that it should be able to use the trading stamp method of tax ac- counting, which would offset that income by associated costs. Because we find that the tax court’s analysis was incomplete when it considered whether these payments into the fund were Hyatt’s income, we refrain from deciding either of the issues raised by Hyatt. Instead, we vacate the tax court’s deci- sion and remand the case for further proceedings consistent with this opinion. I A Hyatt Hotels Corporation & Subsidiaries is an interna- tional hospitality company that owns, manages, and fran- chises hundreds of hotels. Some of these hotels are owned by Hyatt, but other Hyatt-branded hotels are owned by third parties in management or franchise agreements with Hyatt. From 2009 through 2011, the tax years at issue, Hyatt owned about 20 to 25% of the hotels that bore its name. Like other hotel chains, Hyatt operated a loyalty program during the tax years at issue, called the Gold Passport Pro- gram (Program). The Program allowed members to earn re- wards points by spending money at Hyatt-branded hotels, which could later be redeemed for hotel stays and perks or travel miles. All Hyatt-branded hotels, including those owned by third parties, were required to participate in the Program. No. 24-3239 3 To cover Program expenses, Hyatt managed the Gold Passport Fund (Fund), to which all Hyatt-branded hotels (those owned by Hyatt and otherwise) contributed. During the tax years at issue, hotel owners were required to pay 4% of qualifying purchases (i.e., purchases that earned Gold Pass- port points) into the Fund at the time the points were issued. Alternatively, if a Program member opted to earn travel miles instead of Gold Passport points, hotel owners paid into the Fund the actual cost of the miles. The Fund also derived some income from investing Fund assets in securities and directly selling Gold Passport points to customers. When a member redeemed points at a hotel, which might be long after the points were earned, Hyatt compensated the hotel owner for the stay out of the Fund. The Fund also covered administra- tive and advertising expenses. According to Hyatt, the Program was a critical part of the company’s broader marketing strategy and contributed to in- creased stays by Program members. During the years at issue, Hyatt’s int