IRS Updates Audit Technique Guide for Cost Segregation

On June 1st of 2022, the IRS published the latest addition of the Cost Segregation Audit Technique Guide (ATG). The Cost Segregation ATG assists IRS examiners during audits by providing an understanding of technical information, examination techniques, and what to look for when reviewing cost segregation reports. The IRS put out the original technique guide in 2004, and the document has undergone various revisions through the years, with the latest being in 2017.

KBKG Insight:
While the ATG is designed to provide guidance for IRS employees (and is NOT AUTHORITATIVE), tax professionals have used the document as guidance on the correct methods to conduct cost segregation studies properly. Updated sections that have been recently adjusted and expanded will provide helpful insight into the IRS’s future examination focus.

What’s New in the IRS Audit Technique Guide for Cost Segregation?

The ATG now has updated information and instructions about the following items:

  • Change of Accounting Method
  • Depreciation
  • Bonus Depreciation
  • Section 179 expensing
  • Section 179D deduction
  • Section 263A
  • Qualified Improvement property
  • Changes in tax law from the PATH, TCJ, and CARES ACTs
  • Land and building depreciable basis allocations
  • Issue Specific Guidance on Electrical Distribution Systems – New Chapter 8
  • KBKG Insight:
    Comparing the last version with the new version, there is a push to further educate regarding electrical distribution systems and how an electrical component should be classified as either a structural component or personal property. Future audits may likely look at whether the amount of the electrical distribution system taken as personal property lines up with the correct electrical load analysis for the property. Clients should look for a solid, engineering-based cost segregation provider that correctly analyzes the electrical loads of a property and each individual electrical component.

    The IRS is updating the ATG in light of all the tax law changes over the years and will likely have a few nuanced directives during an audit in light of the new ATG. KBKG will continue to stay out in front of such tax law changes and be there to educate and assist our clients when called upon while both preparing audit ready cost segregation studies and providing superior service for each tax filing deadline.


    Access the Updated Audit Technique Guide



    Action Steps:To find out how a Cost Segregation Study will benefit you, visit: KBKG.com/costsegregation/calculator


    About the Authors

    Lester CookLester Cook, CCSP – Principal
    Midwest
    Lester has over 20 years of experience in the tax specialty service industry. He is a Principal and leads KBKG’s Fixed Asset Review Practice from our Chicago, IL office. Throughout his career, Lester has completed cost segregation analyses on thousands of properties ranging from office space leasehold improvements to multi-billion dollar industrial complexes. » Full Bio

    Winston Shurtz, CCSP
    Southeast
    Winston has nearly 16 years of experience in the industry. He is a Senior Manager In KBKG’s southeast region with offices in Atlanta, GA. During his tenure, Winston has completed and overseen cost segregation analyses on thousands of properties. He is a certified member of the ASCSP, which sets standards for the cost segregation industry. » Full Bio