The cost segregation industry has significantly evolved over the past few years. As a result, property owners and accounting firms are seeking to work with established cost segregation specialists.
The following are important things to consider when choosing a cost segregation provider.
How long has the business been performing cost segregation studies and how many studies have been completed? This can be a complicated thing to find out and you may have to do some homework. Some new start-up firms are claiming they’ve performed 5,000 studies or more. Of course, this isn’t necessarily true. You see, most cost segregation providers have less than five engineers on staff. On average, an experienced cost segregation engineer can perform 50 studies per year. Therefore, a firm with five engineers would have to be in business for approximately 20 years to complete 5,000 studies.
Who will be performing the work? Does the firm employ any degreed engineers or professional engineers (P.E.s)? Since the IRS stressed the importance of an engineering-based study in the ATG, many firms have jumped on the engineering bandwagon. Unfortunately, this has become a kind of buzz word that firms use to market themselves.
What methodology does the firm use? Verify that they use a detailed engineering approach and provide a breakdown of all costs, including those that do not qualify for accelerated depreciation. If they don’t, you or your client could be facing additional risk in the event of an audit.
Find out if the firm subcontracts its cost segregation work to a third party. If so, be sure to find out their credentials as well.
How will the firm defend its work in the event of an audit? Find out if there is an additional expense for audit support, what the limits are, if the firm retains the necessary records, and what experience they have defending their studies before the IRS.
Last but not least, always ask for references!
The bottom line is that you should seek advice from a qualified professional with considerable cost segregation experience. Make sure you are working with a firm that employs real engineers as well as the appropriate tax experts.
You may end paying a bit more for the expertise, but it will be well worth it – especially if you are ever called into an audit.