Construction Valuation Services

Special Topics in Construction Valuation Services:

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

The far-reaching impact of Rev. Proc. 96-31, effective May 13, 1996, could extensively improve cash flow for many U.S. companies who qualify for cumulative refunds or tax credits under this recent IRS ruling.

Major corporations rely on the skills of cost segregation specialists at Arthur Consulting Group, inc. to objectively evaluate their eligibility and maximize their benefit under Rev. Proc. 96-31. The Cost Segregation Division at Arthur Consulting Group, Inc., made up of graduate engineers, tax experts, and certified appraisers, analyzes $3 billion in cost segregation annually for federal tax purposes. We are completely knowledgeable in current tax laws and court cases.

Revenue Procedure 96-31, also known as the Accelerated Cost Recovery Method, pertains to the capitalization of assets. This new legal process allows corporations that have claimed less than the allowable depreciation and amortization to claim the allowable depreciation and amortization for the current year and closed, prior years.

For example, property that has been improperly classified, for depreciation purposes, as Sec. 1250 (real, long life), can be correctly reclassified as Sec. 1245 (short life). The present value advantage of classifying a property unit into the short life category, compared to the long life category, is an approximate savings of 20 cents for every dollar identified.

The new ruling allows the taxpayer to go back into closed years and recover the savings.

Who should apply?

ACG cost segregation and valuation specialists are observing foremost results under this provision for corporations who have engaged in construction projects, made major stock or pooling purchases, or, are in the process of purchasing a company for which they will carry tax liability. There are significant tax savings on a single project; cumulative savings from past years could signify a huge "windfall" for many companies.

How to Apply for an Adjustment

To qualify for an adjustment under Rev. Proc. 96-31, the following steps are taken:

• A cost segregation study/audit of the years in question to properly separate property for federal tax purposes should be completed. ACG depreciation studies begin with the identification of short-lived property units based on test criteria and authority gleaned from the Internal Revenue Code, Treasury Regulations, Revenue Rulings, and Tax Court decisions.
• 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.
• An application for a Change in Accounting Method (Form 3115) is submitted to the I.R.S. within 180 days of the beginning of the tax year (year of change).
• The omitted depreciation and amortization are then taken into account by the IRS, usually through a Section 481(e) adjustment.

Why Choose Arthur Consulting Group?

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 develop methodologies and provide analysis, typically in complex questions of valuation where advanced analytical skills are required for trial preparation.

Due to the unique methodology which we employ to establish a property unit's installed cost and the ensuing audit trail documentation, Arthur Consulting Group has never been opposed by a taxing authority on Sec. 1245 issues. In fact, we were recently called by the Service, as an expert witness, to consult on a district court case regarding a dispute over a structural component of a building.

Because of our work representing the Service, we are seen as highly qualified to represent corporate clients. We are not an accounting firm and pride ourselves on providing objective, independent analysis, supported by complete and well-documented reports that will stand up to third party scrutiny.

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