Cost Segregation From An IRS Standpoint

After more than 40 years of court rulings and legislative acts affecting the Investment Tax Credit, cost segregation has become a complex niche incentive within real estate. To fully understand and implement cost segregation studies, it is useful to examine IRS laws and techniques to produce the most incentivized studies. Depending on the property type in question, the different types of assets at hand must be classified into the proper category to compute the depreciation and cost.

The Internal Revenue Code allows several different methods to calculate depreciation and provide tax incentives the applicable:

  1. Depreciation method
  2. Recovery period
  3. Convention

The cost segregation professionals at Engineered Tax Services provide detailed studies on properties to support claims of depreciation that allow property owners to receive benefits by abiding the precedent tax laws and case studies.

The U.S. Treasury Department has overseen the Internal Revenue Code laws to identify how the IRS will interpret these laws and apply them to individual cases. Over the years, legislative regulations have been released that have the same authority as statutory law and provide operation rules specific to IRC provisions. IRC Commissioners have released Interpretive Regulations that explain the IRS’s views on various Internal Revenue Code sections. These regulations may be challenged if they do not withstand congressional objectives but still carry high authority within the system.

The Tax Court is overseen by the Commissioner of the IRS and was created by the U.S. Congress. It has 19 members appointed by the President of the United States. After Tax Court, if the case is still not resolved, then it may be taken into the hands of the federal court system. A very small amount of cases go to the Supreme Court System, and rulings are based on related rulings, IRS documentation, and interpretation of the U.S. Constitutions or Laws. Litigation can be very costly to the average taxpayer so often times small tax liabilities are not monumental enough to spend the money, time, and effort to take these cases into the courts.

If a taxpayer feels that their individual case is an exception to the guidelines of the law, it is possible the matter may be taken to tax court and a judicial hearing can be appointed for the case.

Request a Free Benefit Analysis to identify an estimated benefit and ensure a cost segregation study makes sense for your business.

To learn more about cost segregation studies, call Engineered Tax Services at (800) 236-6519 or visit cost segregation page for more information.

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