IRS Releases Updated Cost Segregation Audit Techniques Guide

On 6/1/22, the IRS made available an update to the “Cost Segregation Audit Techniques Guide” (Publication 5653). Originally issued in 2004, the purpose of the Audit Techniques Guide (ATG) was to offer guidance to IRS auditors auditing cost segregation studies. Because the ATG is an interpretation of the law, as opposed to the law itself, it cannot be cited as precedent. It does however provide an inside look at how the IRS views this subject.

The IRS maintains a library of Audit Techniques Guides (ATGs) intended to help IRS examiners during audits by providing insight into issues and accounting methods unique to specific industries. While ATGs are designed to provide guidance for IRS employees, they’re also useful to small business owners and tax professionals who prepare returns.

ATGs explain industry-specific examination techniques and include common, as well as, unique industry issues, business practices and terminology. Guidance is also provided on the examination of income, interview techniques and evaluation of evidence. So they may be helpful for business and tax planning purposes.

Since the original ATG was issued in 2004, a number of things have change pertaining to depreciation law sourced in:

Tangible Property Regulations (TPRs)
PATH Act of 2015
Tax Cuts and Jobs Act of 2017
CARES Act of 2020

These new laws gave us changes in definitions/procedures regarding:

Change of Accounting Method
Depreciation
Bonus Depreciation
§179 Expensing
§179D Commercial Buildings Energy Efficiency Tax Deductions
§263A
“Qualified Improvement Property”

The new Guide demonstrates a renewed focus on auditing, specifically the importance of identifying land values and the accurate allocation of land preparation costs. New Chapter 8 section provides issue specific guidance on electrical distributions systems. With a new focus on land values, and the correct breakdown of electrical components, the need for a quality, engineering-based cost segregation provider could not be more important.

(This is Blog Post #1228)

About the Author: Roger Rossmeisl, CPA

Roger Rossmeisl, CPA, brings over 40 years of experience helping small business owners who have outgrown their current CPA firm and larger companies seeking responsive, cost-effective solutions they’re not receiving from their current CPA Firm. He goes beyond tax compliance, explaining the “why” behind the numbers and their impact on cash flow and other decision making. An avid follower of federal monetary policy, Roger adds insight into how government actions affect business and wealth. With a niche in franchised new vehicle dealerships, he has served over 100 franchise stores and groups through decades of evolving IRS rules and legislation.

Categories: Small Business Tax Briefs