Tax Authority Says

IRS Legal Memorandum 1999921045, May 28, 1999

"As a practical matter, it should be noted that the use of cost segregation studies should be specifically applied by the taxpayer. An accurate cost segregation study may not be based on non-contemporaneous records, reconstructed date or taxpayers’ estimates or assumptions that have no supporting records. Thus cost segregation studies should be closely scrutinized by the field."

Research Institute of America, Weekly Alert. August 10, 2000

"…more sophisticated taxpayers have hired firms to conduct what are called cost segregation studies. These studies make detailed inventories of individual assets in order to distinguish items of section 1245 property from items of 1250 property. Following a selection of recent court decisions, these studies have been aggressive in designating property as section 1245 property."

Practitioners Publishing Company, National Tax Advisory. July 6, 1999

"Increasing your clients depreciation deductions for improved real property can reduce their taxable income without additional cash outlay. That not only helps their cash flow, it can also make [the CPA} look like a hero when you want to quantify the savings for them.

In addition, using qualified appraisers, architects or engineers to perform the analysis is preferred to a taxpayer (or taxpayers accountant who is not a qualified appraiser) doing the study and is more likely to withstand an IRS challenge to the allocations."