Do cost segregation studies increase the chance of an audit?

Conducting a cost segregation study does not increase your chances of being audited, though you should always have sufficient protection through and engineered cost segregation study to be prepared in the event of an audit. While the IRS allows for and supports straight-line depreciation, they have stated that cost segregation by component is the proper way of handling depreciation.

If your cost segregation study is handled by a professional team with sufficient engineering expertise, you can rest assured that there are proper documentation and cost information from construction and accounting records are provided to support the study every step of the way.

What does the IRS say about performing cost segregation studies?

The IRS has spoken about cost segregation studies on multiple occasions.

“Cost Segregation is a lucrative Tax Strategy that should be used in almost every purchase of commercial real estate.”

– IRS, Wall Street Journal

“As a practical matter, cost segregation studies should be applied by the taxpayers.”

– Internal Revenue Service

Cost Segregations and Audits

Having a proper cost segregation study done doesn’t have an effect on whether your business is audited. If the deductions that are sought after in the study are extremely aggressive and egregious, it could possibly trigger an audit. This shouldn’t happen if the study is done correctly, however.

In the case of an audit, the cost segregation schedule and information would be looked over, so it’s important to have the right team do the study and keep track of all of the details.

What business factors trigger an audit?

There’s no comprehensive list of factors that can trigger an audit for your company, so always be ready to handle one. Some examples that may cause an audit are:

Rapid growth

Handling lots of cash

High expenses

Industry type

Home office

Tax-exempt sales

Fountain pen writing on paper

What happens if I’m audited after a cost segregation study?

If you’re audited after a cost segregation study, everything in the study and the depreciation techniques are fair game for the IRS. You’ll need the team that conducted the study to back you up with facts and evidence.

If ELB Consulting clients are audited, we always back them up completely free of charge, as long as they own the building. We have handled plenty of audits successfully, and we have a perfect record with the IRS. In fact, because of our expertise and reputation, we are often sought out to provide defense when companies are undergoing an audit of their depreciation schedule, after doing the study on their own or used a lower level study methodology. When you work with ELB, you won’t have to worry about losing your depreciation benefits due to an audit.

Can you reduce the chance of an audit?

There is no way to reduce your chances of being audited, though a cost segregation is not a trigger for an IRS audit. In the event of an audit, due to our fully engineered and accounted component level cost details, our studies are “bullet-proof” and fully comply with the IRS Audit Techniques Guide for Cost Segregation. This is because of our forensic detail in both the accelerated property (5, 7, and 15 year short life components) and straight-line (39 or 27.5 year) property. And we fully back our findings at no additional fee as long as you own the property. So while we can’t reduce your chance of an audit, ELB can assure full compliance with IRS guidelines and will defend our study at no additional cost to its clients.

Why choose us for your cost segregation study?

Recognized as Cost Segregation Experts by the U.S. Tax Court

Absolutely No Studies Rejected or Denied by the IRS

More detail = more tax benefits.

Most Detailed Breakdown

Our in-house engineers find the depreciable assets that others miss. We do this by breaking down assets with traditionally 39 or 27.5 year straight-line depreciation and find component parts that can be depreciated faster. We don’t just stop there. Our fully-engineered study means that we look and account for all of the hidden assets ‘behind the walls’ of your property, giving you more tax benefits than traditional cost segregation studies.

Learn more >

Just a call or email away.

Dedicated Project Managers

From gathering important property details to reviewing your report, our team will walk you through the entire process. Whether you’re just starting construction or auditing an existing property, our helpful experts are here to explain how to get most tax benefits for your situation.

Get started >

 
 
 
 

More detail = more tax benefits.

Most Detailed Breakdown

Our in-house engineers find the depreciable assets that others miss. We do this by breaking down assets with traditionally 39 or 27.5 year straight-line depreciation and find component parts that can be depreciated faster. We don’t just stop there. Our fully-engineered study means that we look and account for all of the hidden assets ‘behind the walls’ of your property, giving you more tax benefits than traditional cost segregation studies.

Learn more >

 
 
 
 

Just a call or email away.

Dedicated Project Managers

From gathering important property details to reviewing your report, our team will walk you through the entire process. Whether you’re just starting construction or auditing an existing property, our helpful experts are here to explain how to get most tax benefits for your situation.

Get started >

Over 14,000 Studies Done Since 2002

Your official cost segregation report is based on nearly two decade’s worth of research and experience. We’ve had the pleasure of working with some of America’s top brands.

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Step Two: We perform a fully-engineered study of your property.

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Step Three: We deliver your 'CPA-ready' report.

Get a completed cost segregation study that decreases your tax liability and puts more money in your pocket.

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