How To Choose A Cost Segregation Provider

Just as you would take the time to research and ask questions of other professionals before choosing them as a trusted advisor (physicians, CPAs, attorneys, etc.), Veritax PA strongly recommends that you ask some questions prior to choosing your cost segregation provider. To help you through this process we have put together the following list of important questions.

How many cost segregation studies have been done by the team doing the work?

• An experienced cost segregation engineer can do about 50 engineering-based studies per year. With some basic math you can get a rough idea of how many studies a team might have performed – assuming they have been at maximum capacity the whole time.

Who will be performing the work? Will degreed engineers be involved?

• Since the IRS stressed the importance of engineering-based studies in the Audit Techniques Guide, many firms have jumped on the engineering bandwagon. Unfortunately, this has become somewhat of a buzz-word that firms now use to market themselves.
• Check the credentials of the people who are actually doing the work. You may find that although their title has the word engineer in it, they are not really an engineer at all.

What cost segregation methodology does the firm use?

• You can start by asking what methodology they use. If they can’t answer the question, or you discover that they use a residual method, you should look elsewhere.
• The residual method (or “partial” study) is relatively easy to identify by looking at a sample report. If you find a single line item for the 39 or 27.5 year components of the property (usually labeled as “building” or something similar), they are performing an incomplete or “partial” study. Look for this red flag since it is also what the IRS will be looking for as well.
• Verify that the company uses a detailed engineering approach which gives a detail account of ALL building components, even the 39 and 27.5 year components that do not qualify for accelerated depreciation. Not only will you lower your risk in the event of an audit but you position yourself for additional tax write-offs if you ever renovate the property in the future.

How do you determine your fee?

• Cost segregation engagements should be quoted on a fixed fee or hourly rate.
• If the provider is charging a contingency fee or up front fee, say “No Thanks”. The IRS ATG specifically states, “Examiners should closely scrutinize studies performed on contingency fees.”

How will the firm defend its work in the event of an audit – if at all?

• Is there an additional expense for this service?
• If a company is not willing to defend their work, with or without a fee, it is not a reputable provider of services.

Are you able to provide references that we may contact?

• Confirm that the company performed their services as described and if they would use them again in the future?