By Alexander Bagne, JD, CPA, MBA, CCSP – President

By Kevin Johnson, CCSP, LEED AP – Midwest Practice Leader

The September 2018 edition of the Journal of Taxation discusses the practice of cost segregation with a focus on IRS Chief Counsel Advice (CCA) 201805001. This CCA memorandum reasons that the preparers of overly aggressive cost segregation studies may be subject to penalties.

The tax benefits for investing in a building are generally poor, as buildings are depreciated slowly over 27.5 years for residential and 39 years for commercial. A cost segregation study carves out components from buildings that qualify for more rapid depreciation, such as land improvements and personal property. The result of such a study yields accelerated tax deductions and greatly improved cash flow.

The recent CCA memorandum contends that overly aggressive cost segregation studies should result in penalties applied to the preparer of the study. Specifically, the CCA argues that overly aggressive cost segregation studies aid and abet taxpayers in the improper preparation of their tax returns. Should these penalties be upheld, the overly aggressive use of cost segregation will now have consequences for both the taxpayer and the preparer of the cost segregation study.

The Journal of Taxation article and the CCA memorandum highlight the need to hire thoroughly competent cost segregation professionals. The American Society of Cost Segregation Professionals (ASCSP) was established as a non-profit corporation in response to the growing need for education, credentials, technical standards and a Code of Ethics within the cost segregation industry. The highest level of certification offered by the ASCSP, a Certified Cost Segregation Professional (CCSP), requires 7,500 of cost segregation experience, passing of a rigorous qualification exam, and a thorough background check.

ICS Note: All ICS cost segregation studies are certified by one of our in-house CCSPs and meet the high standards set forth by the ASCSP. We take great pride in providing exceptional service backed by free audit support.

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If you have questions on cost segreation, please contact an ICS representative. ICS collaborates with taxpayers and their tax professionals to identify credits and incentives that reduce tax liabilities and increase profitability. ICS provides nationwide service through its offices located throughout the country.