Construction Valuation Services

Special Topics in Construction Valuation Services:

• Cost Segregation
• Accelerated Cost Recovery (96-31 & 97-37)

Cost segregation is the process of properly separating property to accurately classify assets for federal tax depreciation. For business, the tax savings from property cost segregation are usually very substantial. To fully comply with the multitude and complexity of tax regulations, the engineering/property accounting analysis of faster depreciable assets and costs must be professional and supportable. Arthur Consulting Group, inc. has analyzed over $30 billion of client construction and successfully defended its cost segregation studies upon audit by all taxing authorities.

Objectives and Benefits

Accurate cost segregations maximize federal tax depreciation for both newly constructed and acquired facilities. The Tax Reform Act of 1986 (as modified by the Revenue Reconciliation Act of 1993) lengthened the depreciable lives for buildings and other related property. Taking more depreciation in earlier years reduces tax liabilities. For every dollar identified through cost segregation as a short life asset, the taxpayer realizes a present value savings of approximately 18 cents (7 year 200% D.B. from 39 year S.L.). Professional cost segregations reduce property tax assessments. For property tax purposes, the state statutes define personal property, fixtures and real property. The taxpayer must correctly interpret these laws and regulations and support accurately segregated cost (and lives) to receive fair assessments.

Methodology

The most effective method of conducting a cost segregation study to obtain the most completely supportable depreciation is the engineering quantity survey approach. The following steps must be performed:

• A complete set construction blueprint must be analyzed, and all short life property marked in order to provide a permanent record for future audits.
• Final project cost must reconcile to the total capitalized amount, and indirect cost must be properly allocated.
• When required, a site inspection is made to provide a photographic record of the property.
• The preparer must be completely knowledgeable in the current tax laws and court cases, and must follow the methodology as defined by the IRS, and other taxing authorities.

Arthur Consulting Group's professionals provide technical and/or litigation support for clients on prior tax years. IRS audits focus on two areas:

• The legal authority for classifying a property unit in a short-lived category; and,
• The methodology employed to establish a property unit's installed cost and the audit trail documentation substantiating it, as defined in the IRS Technical Advice Memorandum 7941002.

Staffing and Qualifications

Arthur Consulting Group is committed to professional excellence consistently achieved by applying only qualified, senior personnel to every assignment to ensure project management continuity and downstream audit support. Our cost segregation staff is made up of graduate engineers, tax experts, and certified appraisers.

Each tax-related service provided is designed to produce an economic return to our client that is many times greater than the amount invested in the service.

ARTHUR CONSULTING GROUP's clients are primarily large corporations, attorneys, government entities and real estate owners and developers. A small percentage of our work is directly with the I.R.S. and the Justice Department, for whom we have developed methodologies and provide analysis in complex questions of valuation where advanced analytical skills are required.

ARTHUR CONSULTING GROUP, INC. maintains offices in California, Texas, and New Jersey, with affiliates abroad to assist in international projects as necessary.

We pride ourselves on providing objective, independent analysis, supported by complete and well-documented reports that will stand up to third party scrutiny.