Cost Segregation Analysis Approach & Methodology
The purpose of our cost segregation analysis is to classify the total construction and other related costs for each commercial property in accordance with the applicable cost recovery system for federal income tax purposes.
The basis for developing and supporting the classification of cost components is a detailed engineering and construction cost analysis that assures greater audit protection by exceeding the rigorous documentation standards required by the IRS. NCSS staff professionals demonstrate their engineering and financial tax expertise by performing an engineering analysis of the structures’ components, then segregating them into proper depreciation class lives according to IRS regulations, revenue rulings and case law. Our engineering staff conducts a thorough examination of construction drawings, specifications review, cost data, and internal cost ledgers for the project. These will provide us with the total capitalized cost (the “Basis”) for the project. We will also inspect the property during the course of our analysis and secure photographs to document those components that, in our opinion, qualify for more rapid depreciation.
Our engineering analysis will be structured to provide a clear and detailed audit trail. This will be accomplished by constructing a series of sections with our report that consistently relate to the original capitalized project cost. In conjunction with this reconciliation to your costs, the construction drawings will be color-coded to assist in the identification of components described in the report. This cross-referencing will provide substantiation and documentation for the classification we recommend.
Our firm utilizes IRS-recommended R.S. Means Building Construction Cost Data software to facilitate our engineering analysis.
Our cost segregation work will be based on Internal Revenue Code, Treasury Regulations, court cases, and revenue rulings. We will show the relationship of our analysis to relevant laws, rulings, and precedents. We place considerable emphasis on the application of such court cases as Scott Paper Co., Morrison, Inc., Mallinckrodt, Inc., Duaine v. Commissioner, Illinois Cereal Mills, Inc., and Shoney’s South, Inc. and Hospital Corp. or America v. Commisioner. By basing the format of our analysis upon such criteria, we are able to accomplish two goals:
1. Our engineering study can be defended as a stand-alone product, and
2. There is a clearly understood relationship between our engineering analysis and our written cost segregation report.
| Additional Resources | ||
| IRS Audit Techniques Guide | ||
| IRS rules regulating cost segregation | ||
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| Third party opinion on cost segregation | ||
| Jay Soled, JD - Charles Falk, CPA, JD | ||
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| Additional info about cost seg | ||
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