- Articles
- Audit Techniques Guide
- Choosing a Provider
- Continuing Education
- eNewsletter
- Estimator
- Marketing Materials
|
Choosing a Provider
|
 
|
One of the most significant challenges when it comes to cost segregation is figuring out how to choose a provider. It is important to know what questions to ask when evaluating potential cost segregation consultants. To help you through this process we have put together the following list of important questions:
• How long has the firm been performing cost segregation studies?
• How many cost segregation studies has the firm performed?
• You may have to do some homework here because there are a number of start-up firms claiming to have performed 5,000 studies or more. Of course this isn’t necessarily true, but how will you know unless you check it out.
• An experienced cost segregation engineer can do about 50 engineering-based studies per year. With some basic math you can get a rough idea of how many studies a firm might have performed - assuming they have been at maximum capacity the whole time.
• Most firms, even the ones with experience, have less than 5 engineers. A firm with 5 engineers can complete approximately 250 studies per year using the assumptions above. Therefore a firm with 5 engineers would have to be in business for approximately 20 years to complete 5,000 studies.
• Who will be performing the work? Does the firm employ degreed engineers? Does the firm employ any professional engineers (P.E.s)?
• Since the IRS stressed the importance of engineering-based studies in the ATG, many firms have jumped on the engineering bandwagon. Unfortunately, this has become somewhat of a buzz-word that firms now use to market themselves.
• Check the credentials of the people who are actually doing the work. You may find that although their title has the word engineer in it, they are not really an engineer at all.
• What methodology does the firm use?
• This may also require some work. You can start by asking what methodology they use. If they can’t answer the question, or you discover that they use a residual method, you should look elsewhere.
• The residual method can be identified by looking at a sample report. Although there may be a lot of detail for the 5, 7 and 15-year assets, you will notice a single line item for the 39 or 27.5 year items (usually labeled “building” or something similar). This is the red flag you should be looking for. It is also what the IRS will be looking for.
• Basically, you want to verify that the firm uses a detailed engineering approach and provides a detailed breakdown of all costs, including those that do not qualify for accelerated depreciation. If they don’t, you could be facing additional risk in the event of an audit.
• How do you determine your fee?
• Cost segregation engagements should be quoted on a fixed fee or hourly rate.
• If the provider is charging a contingency fee, say no thank you. The ATG specifically states, “Examiners should closely scrutinize studies performed on contingency fees.”
• Does the firm subcontract its cost segregation work to a third party?
• If so what are the third party’s credentials?
• What type of quality assurance measures are in place for this arrangement?
• Does the firm carry professional liability insurance?
• If so, what are the limits? Does the policy specifically cover cost segregation and does the carrier have an acceptable rating?
• How will the firm defend its work in the event of an audit - if at all?
• Is there an additional expense for this service?
• Does the firm retain the necessary records?
• What is the firm’s experience with respect to defending its work before the IRS?
• Ask for references and follow up with them. In addition to asking the references if they were generally pleased, you may want to ask some of the following questions...
• How were you introduced to the firm?
• Were they responsive and did they complete the study on time?
• How many cost segregation studies have you done with them?
• Have you ever done a cost segregation study with anyone else?
• Would you use them again?
