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.
The Settlement Program awarded Claimant, a cattle and timber farm $205,140.81 pre-RTP. Part of Claimant’s revenue is from the sale of timberland. BP asserts that Claimant did not include the cost of sales or Cost of Goods Sold (“COGS”) from the timber tracts on its Profit and Loss Statements (“P&Ls”), and as such, they were
not included as variable expenses in the Settlement Program’s compensation calculations. The issue in this appeal is BP’s contention that the cost of sales from timber tracts should have been included as variable 2016-1222 expenses in Claimant’s compensation calculations.
BP contends that treating timber tract sales as revenue while not subtracting related cost of the timber tracts improperly treats sales as pure profit. BP points to Claimant’s tax returns where Claimant reported the cost basis that it sold on its cash basis tax return in order to claim the net revenue from the sale of the timber tracts
rather than gross sales of the timber tracts. Thus, BP contends that Claimant should reduce the gross sales amount it received by the COGS corresponding to the sale. In other words, the cost basis or COGS should have been included in Claimant’s P&Ls.
Claimant counters that in common usage an expense or expenditure is an outflow of money to another person or group to pay for an item of service or for a category of cost. Claimant did not pay for the timber or land. It was acquired by inheritance. When Claimant sells timber or land, the economic impact is the net proceeds received from the buyer since there was not an outflow of money to acquire the timber or land being sold. The basis assigned to the assets has no relationship to the cost or the fair market value. Such amounts are income tax deductions and not expenses. The amount deducted in the tax returns for allocation of basis would be categorized as amortization of the original basis assigned and would need to be excluded from the Cost of Sales to arrived at the variable expense.
It appears to this panelist that the Settlement Program and the Claimant have the better argument and that the claim was handled properly. BP’s appeal is denied.
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