What the Cost Segregation Audit Technique Guide Means for You
What the Cost Segregation Audit Technique Guide Means for You
When the Internal Revenue Service releases a guide, we pay attention. And, in June 2022, the IRS released 5653, Cost Segregation Audit Technique Guide. This publication is the latest in a series of updates to an audit technique guide (ATG) first issued in 2004.
This is the first update to the guide since extensive revisions to its guidance on electrical systems in 2016 and it is the first update to be in the form of an actual IRS publication. But the publication of this guide has prompted many in our field of work to question what it indicates.
This new revision’s primary purpose is to update guidance on developments since the passage of the PATH Act in 2015. These developments include the introduction of Qualified Improvement Property (QIP), first as the test for real property bonus depreciation and then as the sole category of 15-year building improvement property. The expansion of bonus depreciation to used property and the related, multiple rounds of regulatory and procedural guidance on bonus depreciation also are considered. Some practitioners have noted a more expansive incorporation of citations to the Amerisouth XXXII, Ltd. v. Comm’r, TC Memo 2012-67 case.
On that front, we look to Brian Coddington, who is the Director of Tax Accounting Methods and Credits at Source Advisors, and his take on this recent guide. While he has seen an uptick in citations to Amerisouth in proposed adjustments for clients of other cost segregation providers that have come to Source Advisors for assistance, he has not seen a change in the IRS’ overall position on the case.
What does that mean to you? It’s a tax memo that should be taken into consideration, but at the same time, cost segregations involve facts-and-circumstances determinations, and the facts were not developed well by the taxpayer in the Amerisouth case. Coddington believes distinguishable situations lead to different results when presented well in a quality cost segregation study.
While his firm has not seen an uptick in audit activity, they have both seen and heard of a slight increase in overall cost segregation audits, which he expects to continue with increased IRS funding. It’s worth noting as you think about this process at your dealership and with your accountant.
Although a quality cost segregation study represents a significant expense compared to an inexpensive two-page report, there is no comparison in the standard of detail and thoroughness you will receive from the study.
