There are many myths surrounding cost segregation and its benefits. The truth behind the myths are discussed below, as well as some answers to important questions.
Myth:
The IRS prefers one method, on the other hand, there are no real standards for cost segregation study A CPA can not really provide a cost segregation study, you need a "professional".
Myth: The IRS prefers one method for the assessment to another.
The IRS has identified sixMethods for providing cost segregation services, each with their advantages and disadvantages. Even more important is that the IRS does not confirm or in favor of a method over the other. According to the IRS Audit Techniques Guide:
Neither the Service nor any group or association of professionals has all the requirements or standards for the preparation of cost segregation studies have shown. The courts have addressed component depreciation, but not specifically on the methods ofCost segregation studies.
The Service has addressed this issue but only briefly, ie, Revenue Ruling 73-410, 1973-2 CB 53, Private Letter Ruling (PLR) 7941002 (25 June 1979), Chief Counsel Advice Memorandum 199,921,045 (1 April 1999 ). These documents all emphasize that the provision of § 1245 property is factually intensive and must be supported by consistent evidence. It is also carried out a basic assumption that the study classified by "individuals or enterprises, asemployment as "... personnel competent in design, construction, testing and procedures associated with the estimation of construction" (PLR 7941002).
The six IRS-approved methods are:
Detailed engineering approach from actual cost records
Detailed engineering cost estimate approach
Survey or letter approach
Residual estimation approach
Sampling or modeling approach
"Rule of thumb" approach
Each of these methods is acceptable, and everyone has been and will be usedcost to the taxpayer segregation studies. All six approaches, or blended versions of them are acceptable to the IRS. No one method is preferred.
Myth: There are no real standards for a cost segregation study.
The IRS has a set of guidelines state that what they define call a "qualitative study." The definition of a "Quality Study" is one that addresses each of the 13 items listed.
Preparation by a person with knowledge and experience
DetailedDescription of Methodology
Use of appropriate documentation
Interviews with relevant parties
The use of a common nomenclature
The use of a standard numbering
Description of the legal analysis
Determination of unit costs and engineering "take-offs
Organization of assets into lists or groups
Reconciliation of total allocated costs for the total real
Explanation of the treatment of indirect costs
Identification and classification of Section 1245 Property
An examination of the aspects (eg, IRC § 263A, Change in Accounting Method and Sampling Techniques)
Myth: A CPA is not really a cost segregation study, you will need a "professional".
This myth is clearly CPAs lack the expertise to perform cost segregation analysis. Particularly for new construction, where good cost records, a knowledgeable CPA can do a more than acceptable job in preparing a cost segregation study. With the right costRecords, a CPA can effectively and professionally complete engineering study with cost type records. In many cases, we find ourselves supporting a CPA, not by the assessment, but helps to assign life of assets and ensure that assets are properly allocated.
