What if I’m Audited for a Cost Segregation Report
Let’s start with a bit of our background:
- 20 years of experience preparing cost segregation reports
- Over 10,000 cost segregation report completed and delivered to clients
- 12 (+/-) inquiries from a client about a cost segregation report prepared by us and questioned by the IRS
- 12 (+/-) discussions with IRS agents, usually with regard to reconciling our report and methodology with the IRS Audit Techniques Guide for Cost Segregation. (This is an arcane publication in an agency with millions of pages of guidance.)
- 0 changes to cost segregation reports prepared by O’Connor
Now let’s discuss process:
- If we receive an inquiry from a client regarding IRS scrutiny of a cost segregation report prepared without a site visit, we will conduct a site visit and prepare an updated report at our expense.
- More than likely, the results after the site visit would exceed the initial result.
- We will work with your tax preparer to respond to questions from the IRS until the matter is resolved.
- There is no cost for “Audit Insurance” and no fee for supporting our clients if there is a question from the IRS.
How can we make such a generous offer?
We are comfortable with our ability to generate a credible report with appropriate documentation without a site visit. After doing the preliminary analysis and then a cost segregation report over 10,000 times, we know our preliminary analysis is typically about 10% lower than the final report. (We would rather exceed expectations than disappoint).
After doing the preliminary analysis, which is detailed and considers most types of short-life property, we have adequate data to prepare a credible report.
O’Connor’s valuation expertise is deep and broad. Our team includes numerous designated appraisers with 30+ years of experience. Separate from cost segregation, our teams have prepared over 50,000 appraisals or other types of valuation reports. After Hurricane Harvey, we prepared casualty loss appraisals for 4,300 clients in a period of 6 months, in addition to normal operations.
Cost segregation may seem like a black-box but it is a simple valuation problem:
- Determine the quantity and quality of each type of short life and long life property
- Determine the current value after depreciation
- Summarize results in a “cost segregation” report.
This is EXACTLY what the IRS requests with regard to calculating depreciation:
“to calculate depreciation for Federal income tax purposes, taxpayers must use the correct method and proper recovery period for each asset…”