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IRS supports CS

Directly from IRS website on Cost Segregation: "In order to calculate depreciation for Federal income tax purposes, taxpayers must use the correct method and proper recovery period for each asset or property owned. Property, whether acquired or constructed, often consists of numerous asset types with different recovery periods. Thus, property must be separated into individual components or asset groups having the same recovery periods and placed-in-service dates in order to properly compute depreciation.

When the actual cost of each individual component is available, this is a rather simple procedure. However, when only lump-sum costs are available, cost estimating techniques may be required to "segregate" or "allocate" costs to individual components of property (e.g., land, land improvements, buildings, equipment, furniture and fixtures, etc.). This type of analysis is generally called a "cost segregation study," "cost segregation analysis," or "cost allocation study.""

Audit techniques guide

The IRS recently issued an Audit Techniques Guide (ATG) developed to assist IRS examiners in their review of cost segregation studies. The ATG provides an understanding of why cost segregation studies are performed, how they are performed, standards that must be complied with and what to look for in the review and examination of these studies. In addition, three industries were highlighted, casinos, restaurants, and retail industries.

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