SLIDE 44 Best Practices For A Defensible Audit Trail (Cont.)
A cost segregation report reflects a study’s methodology and conclusions. The amount of detail included in a report can id bl d di th i id H th b t f d t l i t tl f d vary considerably, depending upon the service provider. However, the subsequent fundamentals are consistently found in a defensible report.
1) Summary letter/Executive summary A defensible report contains a summary to identify: The preparer; the date of the study; the taxpayer (or client);
the subject property; and the property components classified as land, land improvements, building or personal property.
2) Narrative report A defensible report discusses the theory, definitions and rationale behind the study in the narrative section.
This section generally includes a more detailed description of the property/facility (i.e., a physical description and l i f h f hi h i i i d d ll l l d i i f h d i l i ) I an explanation of the use for which it is intended, as well as a legal description of the property and its location). In addition, the narrative section highlights the regulations, rulings and court cases that support classifying assets as §1245 property. The narrative also discusses the types and sources of data used (e.g., cost records, contracts, purchase agreements, published estimates) as well as how they were used.
3) Schedule of assets A lit t h h d l f t th t th f f th t d
G ll thi h d l ti di tl t
A quality report has a schedule of assets that are the focus of the study. Generally, this schedule ties directly to
the taxpayer’s depreciation records. When a taxpayer reallocates costs of assets already “on the books,” a quality report clearly identifies the specific assets affected (and includes depreciation records from both before and after the reallocation).
4) Schedule of direct and indirect costs A lit t li t ll di t d i di t t i t d ith j t I di
t t ll t d t §1245
A quality report lists all direct and indirect costs associated with a project. Indirect costs allocated to §1245
property are clearly identified and explained. Separately-acquired assets are listed and discussed in the report. to avoid duplication errors. Costs subject to IRC §263A also are addressed. 44
