What is a "Quality" Cost Segregation Study?

In today’s market, it is important to understand that many cost segregation service providers do no take the time and effort to perform a “quality" study as described by the IRS. If one considers that the IRS is ultimately, in the event of an audit, the one to judge the accuracy of a study; it is only prudent to attempt to provide the Service with a document that meets their expectations. Further, quality studies greatly expedite the Service’s review, thereby minimizing audit burden on all parties.

The following lists are taken from the IRS’s Cost segregation Audit Techniques Guide, identifying the principal elements of a "quality" cost segregation study and report.

PRINCIPAL ELEMENTS OF A QUALITY COST SEGREGATION STUDY

PRINCIPAL ELEMENTS OF A QUALITY COST SEGREGATION REPORT

Click here, for an excerpt from the IRS's Cost Segregation Audit Techniques Guide further explaining those elements that comprise a quality cost segregation study and report.

1. Preparation By An Individual With Expertise And Experience
2. Detailed Description Of The Methodology
3. Use Of Appropriate Documentation
4. Interviews Conducted With Appropriate Parties
5. Use Of A Common Nomenclature
6. Use Of A Standard Numbering System
7. Explanation Of The Legal Analysis
8. Determination Of Unit Costs And Engineering "Take-Offs"
9. Organization Of Assets Into Lists Or Groups
10. Reconciliation Of Total Allocated Costs To Total Actual Costs
11. Explanation Of The Treatment Of Indirect Costs
12. Identification And Listing Of Section 1245 Property
13. Consideration Of Related Aspects (e.g., IRC § 263A, Change In Accounting Method And Sampling Techniques)

A cost segregation report reflects a study’s methodology and conclusions. The amount of detail included in a report varies considerably since there is no standard or prescribed format. The following elements are found in a quality report.

1. Summary Letter/Executive Summary
2. Narrative Report
3. Schedule Of Assets
4. Schedule Of Direct and Indirect Costs
5. Schedule Of Property Units And Costs
6. Engineering Procedures
7. Statement Of Assumptions And Limiting Conditions
8. Certification
9. Exhibits

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