Cost Segregation Audit Techniques Guide

[kcjenkins]

http://www.irs.gov/businesses/article/0,,id=134180,00.html

I found CHAPTER 4 - PRINCIPAL ELEMENTS OF A QUALITY COST SEGREGATION STUDY AND REPORT especially valuable reading.

As discussed in the last chapter, there are no standards for cost segregation studies. Thus, examiners will encounter a wide variety of studies and reports, as well as documentation. For example, some studies will be very brief. Other studies may be quite voluminous and complex. Regardless of the length of a study or the methodology used, a cost segregation study and report should always:

classify assets into property classes (e.g., land, land improvements, building, equipment, furniture and fixtures);

explain the rationale (including legal citations) for classifying assets as either § 1245 or § 1250 property; and,

substantiate the cost basis of each asset and reconcile total allocated costs to total actual costs.

WHAT IS A "QUALITY" COST SEGREGATION STUDY?

A "quality" cost segregation study is a study that is both accurate and well-documented with regard to the three points above. Quality studies greatly expedite the Service’s review, thereby minimizing audit burden on all parties. A quality study contains a number of characteristics, which are set forth below.

[kcjenkins]

Let me just add that some of the insights here would apply directly to the common issue of allocation of purchase price between various parts of purchase of land, building and equipment. So even if you never do a single cost segregation study, reading this relatively short guide will still help you to know how to organize and document how you arrived at the asset values, when a client comes in having bought a new property. This is something we almost ALL see every year, at least a time or two. And since any challenge to that allocation will be several years later, following this advice will put you in a good position to protect and represent your client, if and when that is questioned.