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BP Business Economic Loss Claim Appeal 2017-385:Claimant’s COGS Readjusted By SP IAW Claimant’s Ledgers Under Policy 466

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The following is an Appeal Panel Decision issued pursuant to Section 6 of the BP Deepwater Horizon Economic & Property Damages Settlement Agreement and the Rules Governing the BP Appeals Process. Links may have been added to assist the reader. The original decision may be found here, as well as a glossary of BP Settlement terms


Claimant operates a wholesale lumber business located in Canton, Mississippi. After re-review and reconsideration, the Settlement Program awarded Claimant $4,758.19, pre-RTP. Claimant appeals, arguing that the Settlement Program’s adjustments to its Cost of Goods Sold (COGS) expense do not properly match revenues and expenses.
Claimant’s P&Ls reflect an allocation of its COGS that was made for tax purposes; the Settlement Program therefore reversed Claimant’s allocation and used the
contemporaneously recorded COGS expenses from Claimant’s general ledgers. Claimant submitted general ledgers that show when the payments were made, but
adjusted the payments to allocate them to the months in which the expenses occurred in order to file its tax returns each year. Additionally, Claimant records its sales on an accrual basis when the lumber is shipped and invoiced, with the exception of the cost of lumber sold. Claimant conducts a formal inventory on the last day of each year to prepare its income tax return.
In order to match revenues with expenses, the Settlement Program created a contra account to remove Claimant’s adjustments to the COGS accounts made to prepare Claimant’s tax returns, and used the figures from Claimant’s general ledgers— the source documents showing when payments were made. Claimant contends that its monthly P&Ls, prepared on an accrual basis, better match revenue and expenses than the financial information the Settlement Program used.
However, Policy 466 addresses this situation where Claimant re-allocated expenses from source records to prepare its tax returns. Policy 466 allows the Settlement Program to use a claimant’s expense-allocated P&Ls only if the claimant (1)reports annual income and expenses on a Form 1040 Schedule C or E, (2) prepares monthly P&L statements based on its books and records, (3) does not include expenses on its P&Ls, and (4) does not earn annual revenue exceeding $250,000. Here Claimant filed a Form 1120S, not a Form 1040 Schedule C or E, and Claimant’s annual revenues exceed $250,000. Because under Policy 466 Claimant’s expense-allocated P&Ls are insufficient, the Settlement Program requested the general ledgers and a monthly schedule of COGS as actually incurred. This decision was a proper exercise of the Claims Administrator’s discretion.
Accordingly, the Settlement Program re-adjusted Claimant’s COGS based on the general ledgers Claimant provided and made adjustments for beginning and ending inventory based on the provided year-end adjustment entries. Thus, the Settlement Program properly restated Claimant’s COGS for an accurate depiction of Claimant’s matched revenues and expenses. The Settlement Program properly adjusted Claimant’s COGS adjustments based on Claimant’s general ledgers and the year-end adjustments for inventory.
Claimant’s appeal is denied.

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