| ID | Status | Date | Public/Private | Industry | AHACPA Contact |
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| #10936 | Closed | public | _General | _General Support |
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The Operator and Borrower are owned by the same person. There is an original lease agreement that dates back 20 years with multiple options to renew. The Operator has exercised all options to renew previous to this year. During the current year, the lease was not amended and there were no additional options to renew. Per management of the Borrower, the lease is considered month to month. Based on our review of the Section 232 Handbook, Chapter 8, 8.6 Operating Lease Requirements the Operator must have a contractual obligation with the Borrower. Would a month to month, verbal, contract suffice, or does the Borrower need to amend the lease to add additional renewal options? If renewals are required, would annual renewals be acceptable? |
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Chris, this is an interesting question. I started where you started but was concerned that the Section on “Production” was geared to new loans as that is why “Production” means. SO, I went to Section III, chapter 2. It then told me to go back to Section II , chapter 8. So…
I have never had this question come up, but a at a loss to formulate a different argument. It lloks like the lease should be renewed to meet those requirements. Since they are related parties it may not be too important. If I had to deal with this as a part of the audit, it would likely be a management comment as I am a little uncertain as the application for a 20-year project and may not feel comfortable with a finding.
I also re-read the Reg agreement for the operator. That document is also silent as to lease terms, so I guess I will stick to my answer.
Les Sparks AHACPA (801) 547-0809
From: AHACPA Support <support@ahacpa.org> |