How to Vet a Cost Segregation Partner: A Guide to Protecting Your Investment

Selecting the right cost segregation partner is a critical financial decision. A high-quality study can accelerate hundreds of thousands of dollars in depreciation deductions, improving your cash flow dramatically. However, an inadequate or non-defensible study can lead to missed savings, IRS audits, and costly penalties.

What to Demand from Any Partner

Not all cost segregation studies are created equal. The IRS has specific expectations, and your partner’s methodology must align with them.

The most critical credential to look for is the Certified Cost Segregation Professional (CCSP). Administered by the American Society of Cost Segregation Professionals (ASCSP), this certification requires a minimum of 7 years and 7,000 hours of direct experience. A partner employing CCSPs demonstrates a commitment to the highest professional standards and significantly increases the defensibility of your study in the event of an IRS review.

Ask potential partners to explain their methodology in detail. If it doesn’t center on engineering principles, it’s a major red flag. Beware of firms that rely on "rule-of-thumb" estimates or residual methods. The only approach that consistently withstands scrutiny is the Detailed Engineering Approach from Actual Cost Records, as outlined in the IRS’s own Audit Techniques Guide. This method involves:

• A thorough review of construction blueprints, invoices, and capital expenditure records.

• A detailed, on-site (or virtual) examination of the property.

• A line-item breakdown of assets into the correct depreciation categories (5, 7, or 15-year property vs. 27.5 or 39-year building).

• Representation is included in their fee. You should not pay extra for them to defend the work they produced.

• They have a proven track record of successfully supporting clients through IRS examinations.

Your partner’s job isn’t done when the report is delivered. The true test of their confidence and service is audit defense support. Ensure that they have a proven track record of successfully supporting clients through IRS examinations and that representation is included in their fee. You should not pay extra for them to defend the work they produced. A firm that stands behind its work will have a clear process for audit representation, giving you priceless peace of mind.

Experience matters. A firm that primarily studies retail centers may not optimally identify the unique, shorter-life components of a medical facility, manufacturing plant, or apartment complex. Choose a partner with a deep portfolio in your specific property type. They will know where to look for hidden savings and understand the common audit triggers for your industry.

A reputable firm will charge a transparent, flat fee for its services. Providers who charge a contingent fee based on a percentage of your tax savings are vague enough to be risky for you. The IRS views such arrangements skeptically as they may incentivize over-aggressive allocations.

Your Vetting Checklist: Key Questions to Ask

When interviewing potential firms, come prepared with these direct questions:

• "Will your report be prepared using the Detailed Engineering Approach? Can you provide a redacted sample report that shows this level of detail?"

• "Is full audit defense included in your quoted fee? Can you share an example of how you’ve supported a client through an IRS review?"

• "What specific documentation will you need from me and my CPA to begin?"

But Before Making the Final Decision

Request a preliminary analysis. A credible partner will offer a complimentary, high-level feasibility analysis to estimate your potential benefits and confirm the study’s value. Also, check specialized references: ask for 2-3 references from clients who own properties very similar to yours. Ensure the scope of work, deliverables, timeline, fee, and audit defense terms are clearly documented.

A cost segregation study is not a commodity; it’s a strategic partnership. The right firm acts as a consultant and advocate, ensuring your study is seamlessly integrated with your tax strategy and defended against challenges. At USTAGI, our process is built on these non-negotiable principles. Our studies are led by Certified Cost Segregation Professionals (CCSPs) and follow the rigorous engineering-based methodology mandated for IRS defensibility. We include audit defense support in every engagement because we stand with absolute confidence behind the accuracy of our work.

Ready to partner with a firm that prioritizes your protection as much as your savings?
Let us provide a confidential, no-obligation feasibility analysis for your property.

Disclaimer: This blog post is for informational purposes only and does not constitute tax, legal, or financial advice. Please consult with your CPA or tax advisor to discuss your specific situation.