There are two extremely important points raised by this question, 1) Will I get all of the benefit I am entitled to by performing a cost segregation study if the study is performed by someone who does not necessarily have the training or experience to do a quality study and 2) will the study performed by my CPA withstand IRS scrutiny?
Guidance in this can be found in the IRS Cost Segregation Audit Technique Guideline. The number one item the IRS looks for in determining if the study is a “Quality” study is whether the cost segregation study was performed “By an individual with expertise and experience”.
The Audit Technique Guideline goes further by stating:
““The preparation of cost segregation studies requires knowledge of both the construction process and the tax law involving property classifications for depreciation purposes.”
“… a study by a construction engineer is more reliable than one conducted by someone with no engineering or construction background. However, the possession of specific construction knowledge is not the only criterion. Experience in cost estimating and allocation, as well as knowledge of the applicable law, are other important criteria.”
Performing a cost segregation study without having the requisite skills to perform a quality engineered study could result in misclassifying assets resulting in lower tax benefits and/or much more exposure during an audit. Additionally, an engineer can provide significantly greater tax benefits by breaking down construction costs even further through an analysis of the blueprints, a thorough facility inspection, and the use of proprietary software and tools.
There is a great risk that taxpayers who attempt to do cost segregation on their own or who engage their CPA, who lacks a background in construction cost estimating or engineering, to perform the cost segregation will misclassify assets resulting in a reduced benefit or create much greater exposure during an audit.