PCS conducts its cost segregation studies in accordance with the IRS-published Cost Segregation Audit Techniques Guide (“ATG”) and the Minimum Quality Standards (“MQS”) published by the American Society of Cost Segregation Professionals (“ASCSP”). Chapter 3, Cost Segregation Approaches, of the ATG describes methodologies commonly used in cost segregation studies. PCS will utilizes a hybrid of the detailed engineering approach from actual cost records, or “detailed cost approach,” and the detailed engineering cost estimate approach, or “detailed estimate approach”, to execute cost segregation studies. The two approaches are the most methodical and accurate approaches used in the industry. As actual costs are not available for every item to segregated in a study, the “detailed estimate approach” is the approach more commonly used by PCS.
The goal of the detailed cost approach is to rely mostly on solid documentation with minimal use of estimation. Construction-based documentation, such as blueprints, specifications, contracts, job reports, change orders, payment requests, and invoices, are used to determine costs. If actual costs are unavailable, the detailed estimate approach is utilized, and required estimates are based on costing data, either from contractors or from reliable published sources (e.g., R. S. Means or Marshall Valuation Service). The specific methodology that will be utilized in the proposed projects is outlined below:
1) Identify the specific project/assets that will be analyzed.
2) Obtain a complete listing of all project costs and confirm costs reconcile to amounts reported on financial statements or tax returns.
3) Review "as-built" blueprints, specifications, contracts, bid documents, contractor pay requests, and other construction documentation, for newly constructed or renovated properties. For acquired properties, the documentation selected for review includes appraisals, lease agreements, and similar documents.
4) Conduct a site visit to physically observe the facility condition and use, how assets are used in the business, as well as their manner of attachment and relationship to the overall operation of the building.
5) Take photographs or conduct interviews to support determinations and classifications.
6) Identify property, through document analysis and site observations, that should be segregated from the building cost and depreciated differently.
7)Establish cost basis for identified items, by extracting data from cost documentation or preparing quantitative "take-offs" using R.S. Means or Marshall & Swift.
8) Analyze the detail of indirect costs to determine the item(s) or asset group(s) to which each cost relates, and allocate the costs accordingly.
9) Reconcile total estimated and allocated costs obtained from quantitative take-offs to total actual costs.
10) Categorize each asset as IRC §1250 or IRC §1245 property.
11) Assign appropriate asset classifications in accordance with IRC §168 and Revenue Procedure 87-56 to determine the proper method, convention, recovery period and bonus applicability for each asset under the MACRS system.
12) Prepare schedules and a report which summarizes the results of the Study.