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:
