IRS Expectations for Cost Segregation Studies
The IRS has a very stringent policy when it comes to how cost segregation is done by a taxpayer or their representatives. There are three main expectations when it comes to reports:
Credible Methods
There are many methods used in the course of cost segregation. We at O’Connor use the two main methods, which are the engineering method and the appraisal method. We do not the other options, as they leave too much room for guesswork. The engineering method is favored by the IRS, which uses records from the initial construction of the property, contractor invoices, and other well-documented sources in order to zero-in on the value of items that were put into the property.
Credible Results
The IRS will obviously want all results to be realistic, honest, and reliable. This is why we stick to tried-and-true techniques like the engineering method over such things as the “rule of thumb” approach. Results require that they are supported by hard evidence. It is impossible and unprofessional to prepare a report that does not go into detail. At O’Connor, we are sure to use primary documents, review public records, utilize private data, and any other verifiable data source. If possible, we will supplement our data with photography, video, site plans, blueprints, and other material supplied by the client.
Documentation
Accurate documentation allows us to put together a cost segregation support that pleases both our client and the IRS. While the IRS does begrudgingly support cost segregation, they will not stand for misinformation. Even the smallest claims need to be backed up by documented facts. This can be achieved with things like drone footage, aerial photography, and a strong paper trail that uses public records. This enables us to tell the story of a property. The more in-depth we can make our investigation, the more short-life depreciations we can spot.
Cost segregation is one of the most complicated things we do at O’Connor, but we have the experience and personnel to put together the perfect report. Outside of our various intangible advantages, we also have a sophisticated and robust one-of-a-kind database that has some of the most detailed property records in the country. And if all of these resources are not enough, we can still send out an expert to do a site visit at our expense.
We have been doing cost segregation studies for over 25 years and have over 10,000 completed studies to our name. We at O’Connor can give you a brilliant report backed by credible methods, credible results, and detailed documentation.