Should I worry if I am audited?
Like other tax records, cost segregation studies are subject to IRS audits. Therefore, it is essential to start with an engineered cost segregation study.
Some people worry that having a cost segregation study will trigger an audit, but that isn’t the case. And often, your cost segregation study can help you if the IRS audits you—and if the study was performed correctly and backed up with proper documentation. That’s because, along with offering great tax benefits, one of the primary purposes of conducting a cost segregation study is to provide the necessary support for taxpayer deductions.
IRS Review of Your Cost Segregation Study
Like other tax records, cost segregation studies are subject to IRS review. Therefore, it is essential to start with an engineered cost segregation study. Our engineering-based cost segregation studies are far better than the residual studies most other companies perform. They
- Reconcile all project costs, as required by the IRS, keeping you safe in the event of an audit.
- Give property owners and tax professionals the ability to track and retire short and long-life building components removed from service.
- Offer you tax benefits in the first tax year. Those benefits continue throughout the identified assets’ depreciable life.
- Provide tax benefits every time a building component is replaced/taken out of service for as long as you own your property.
Always Be Prepared for an Audit
It is essential to have an accountant who will follow IRS guidelines to increase your depreciation and tax savings and reduce risk. For example, the IRS allows and supports straight-line depreciation, but they have also stated that the proper way to handle depreciation cost segregation by component.
When an experienced team with engineering expertise handles your cost segregation study, you will have the proper documentation, accounting records, and cost information in your final report. This will support the study should you be audited.
Along with proper documentation, M&E stands by our studies. We are available to assist in resolving questions and issues with the IRS or other tax authorities should the cost segregation get audited.
The IRS Can Tell a Good Study from a Poor One
For example, the IRS favors studies conducted by independent firms over those performed in-house. But not just any independent cost segregation provider will do.
When choosing a provider, ask to see a sample of their studies so you can compare the methodology used and the level of detail they provide.
At M&E Cost Segregation, we meet or exceed IRS recommendations for performing cost segregation studies. That’s why we are confident that our studies will stand up to any scrutiny. And if an IRS audit does occur, or if any questions are raised, we will defend our studies at no additional cost.