Review and Examination of a Cost Segregation Study

Overview of Auditing a Cost Segregation Study

Did you know that the IRS Cost Segregation Audit Techniques Guide was created to aid auditors the review and examination of a cost segregation study? The best part is, is that it readily available for you to view on the world wide web!

As the taxpayer and/or CPA, understanding the “other side” will give you a greater understanding of what goes on “behind the scenes.”

The below steps are a high-level summary of the steps that the IRS auditor will typically execute while auditing a cost segregation study.

  • Review the cost segregation study for accuracy and risk analysis
  • Reconcile cost basis of property to cost basis in the taxpayer’s “books”
  • Evaluate the study to assess the audit’s potential
  • Request all necessary documents needed for examination
  • Interview preparer of the study for additional details
  • Conduct inspection of property, if necessary
  • Verify property classifications and recovery periods
  • Review relevant court cases, rulings and regulations to ensure the study’s legal analysis corresponds with the current body of law
  • Conduct a cost analysis to verify the construction costs used are appropriate
  • If needed, meet with taxpayer to ensure possible concerns are addressed
  • Prepare and issue final report

If necessary:

  • For new construction projects, confirm indirect costs are accounted for appropriately
  • If sampling techniques were used, enlist the expertise of Computer Audit Specialist (CAS)
  • If the taxpayer self-performed the construction of the project, ensure that §263A requirements are met

Want a full download of the IRS Cost Segregation Audit Techniques Guide? Download our free and simplified version here:

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