C A S E S T U D YC O S T S E G R E G A T I O N

A PROVENPROCESS: Key to defendingan IRS cost segregationaudit.

K A H N , L I T W I N ,

R E N Z A & C O . , L T D .

The ChallengeSuccessfully defending an IRS audit on a complex cost segregation study that had beencompleted for a CPA firm’s client a few years earlier.

The ProcessFollowing a deliberative, multi-phase approach when conducting cost segregationstudies. Having all supporting documents readily available to defend an IRS audit if oneis selected. Remaining current on all revenue procedures and tax law thereforemaintaining strict adherence should an audit occur.

The BenefitsA smooth audit process with 100% defensible material contained in the original costsegregation study. The IRS concluded no adjustments were necessary. Additional auditsfor the same client were deemed unnecessary. Improved the cash flow of the clientthrough tax deferrals.

14

Partnering with Ernst &Morris awards strongbenefits to both CPAfirms and their clients.

“Our CPA clients find partnering with us

to be as seamless as working with their own

staff,” Morris said. “In fact, we see our-

selves as being part of their team through-

out the cost seg process.”

KLR principal D’Andrea viewed a prime

benefit of partnering with E&M from

another perspective. “Their extensive

knowledge of current legislation, regula-

tions, revenue rulings,

court cases, building con-

struction, and engineering

provide us with thorough

and highly supportable cost

segregation analyses,” he

said. “That enables our

clients to maximize depre-

ciation benefits, decrease

current taxes, and improve

cash flow.”

CPA firms have found that, by partner-

ing with E&M, the client’s benefits of cost

segregation studies can outweigh their cost

by a factor of ten or more. “What’s more,”

Morris asserted, “it’s reassuring to our

partnering CPA firms and their clients that

every cost seg study we complete is sup-

ported by a defensible interpretation of

applicable and current

tax laws and regulations,

is thoroughly document-

ed, and is 100% audit

ready.”

“We saw first hand

what partnering with

E&M was all about by

the way they stood

behind their conclusions

during the audit process,” D’Andrea

summed up. “From day one, E&M’s policy

has been clear: should any cost segregation

study they perform become the subject of

an IRS audit, E&M will defend the study

until a satisfactory conclusion has been

reached, including 40 gratis hours. We pass

along that same kind of confidence to our

clients.”

C A S E S T U D YC O S T S E G R E G A T I O N

K A H N , L I T W I N ,

R E N Z A & C O . , L T D .

Ernst & Morris Consulting Group, Inc.SINCE 1993

2190 Dallas HighwayMarietta, Georgia 30064

i n f o @ c o s t s e g . c o m1 . 8 0 0 . C O S T S E G

w w w . c o s t s e g . c o m

Ernst & Morris Consulting Group, Inc.,

America’s oldest and largest firm dedicated

solely to performing cost segregation studies,

is staffed by professionals with over 100

years of combined experience in the fields of

engineering, audit, appraisal, construction,

and depreciation tax accounting. Since 1993,

E&M has performed more than 8,000 cost

seg studies—in all 50 states—enabling clients

to defer over $1 billion in taxes. Ernst &

Morris currently works with hundreds of CPA

firms nationwide and is the preferred cost seg

study provider for CPAmerica International, a

worldwide network of independent accounting

firms, and the National Society of

Accountants (NSA).

“We are confident thatE&M’s cost seg studyconclusions will standup to IRS scrutiny.Their successful IRSaudit experience isunmatched among costseg providers.”

ROBERT D’ANDREAKLR

KLR’s challenge: A client’s cost seg study faces an IRS audit

C A S E S T U D YC O S T S E G R E G A T I O N

K A H N , L I T W I N ,

R E N Z A & C O . , L T D .

Afew years after KLR began work-

ing with Ernst & Morris

Consulting Group, Inc., they

received an Information Document

Request (IDR) from the IRS related to a

study for a complex medical office build-

ing in Lincoln, RI.

“We were surprised that, 18 months

after the completion of this cost segrega-

tion study, the IRS now wanted to audit it,”

Robert D’Andrea, CPA/MST, a principal at

KLR, said. “For this $4.4M building, the

E&M study had reclassified over $1.7M in

tax deferrals. I contacted Mike Morris

right away.”

E&M managing director Morris quickly

put D’Andrea’s mind at ease. “I assured

him that after doing more than

8,000 cost seg studies, we had

experienced the audit process

many times,” Morris said. “I

told him that every step we

take in our cost segregation

process ensures that we can

defend an audit efficiently and

successfully.”

Mor r i s a l so adv i sed

D’Andrea that the number of

IRS cost seg audits has

increased over the past few

years and that it was nothing to be anxious

about. “The IRS’s current audit guide

describes what should

be contained in a qual-

ity cost seg study,”

Morris continued. “By

ensuring that our stud-

ies comply with this

guide, we defend our

studies successfully.”

D’Andrea had first

met Mike Morris at a

conference of Leading

Edge Alliance (LEA)

accounting firms. It

w a s t h e r e t h a t

D’Andrea learned of the extensive experi-

ence that Ernst & Morris had in performing

hundreds of engineering-based cost seg

studies for LEA and CPAmerica

International firms. “I was also impressed

that Morris had a background with a

national accounting firm,” D’Andrea said,

“and that his team had come up through

the ranks working with numerous CPA

firms across the country.”

F I R M P R O F I L E :K A H N , L I T W I N , R E N Z A & C O . , L T D . , M A K I N G A D I F F E R E N C E A M O N G N E W E N G L A N D C P A F I R M S .

KLR, founded in 1975, is the largest accounting and business

consulting firm in Rhode Island and, according to Practical

Accountant magazine, the fastest-growing CPA firm in New

England. This 100-person firm provides its clients with work-

able, cost-effective solutions to an ever-expanding list of

accounting, tax, and business needs. KLR is a founding mem-

ber of the Leading Edge Alliance (LEA) and also a member of

Kreston International. These affiliations enable KLR to offer accounting services to clients

throughout North America and abroad.

“We work closely withthe CPA and their clientin deciding how aggres-sive the cost seg studyshould be, which ‘grayareas’ made sense, andassuring that the conclu-sions are defendable.This—and our provendocumentation process—set the stage for a smoothIRS audit defense.”

MIKE MORRISERNST & MORRIS

E&M’s audit process:Making it thorough anddefendable

In addition to conducting thorough engi-

neering-based cost seg studies, as standard

operating procedure, E&M professionals

create detailed files that include all the

construction cost data, color-coded draw-

ings, work papers, photographs, and other

documentation gathered during the study.

As Morris put it, “With this on file, we can

quickly provide our clients with a thor-

oughly detailed audit trail should they ever

need it.”

E&M’s paper-trail process ensures the

study documentation is comprehensive,

defensible, and easily retrievable. “The

files we provide our CPA clients clearly

substantiate any ‘gray area’ that the IRS

may call into question,” Morris added.

“After quickly retrieving our study files, we

carefully reviewed every item and prepared

a formal response to the IRS auditor.”

Though it proved unnecessary, E&M was

prepared to meet with the IRS auditor at

the building site.

The result: No adjustments tooriginal study, noadditional audits

“Just as they do while a cost seg study is

being performed, E&M provided quality

support and kept us informed throughout

the audit process,” D’Andrea claimed.

“They promptly responded to the IRS

inquiries in writing, providing a detailed

rebuttal that included in-depth explana-

tions justifying site and land improvements

totaling over $400,000,” he added.

The IRS was clearly impressed with

Ernst & Morris’ report. After reviewing

E&M’s response and supporting docu-

mentation, the IRS auditors closed the

investigation by concluding that the cost

seg study would be accepted as originally

submitted.

“By making it easy for the IRS auditor to understandthe rationale behind every decision and every claim,no adjustments were imposed.”MIKE MORRIS,ERNST & MORRIS

2

Mike Morris, Managing DirectorErnst & Morris Consulting Group, Inc.

“Based on E&M’s successfuldefense of this first audit, the IRSdetermined that cost-seg audits onsix other properties owned by thesame client were unnecessary.”

ROBERT D’ANDREA, CPA/MSTKLR

ROBERT D’ANDREACPA/MST

KLR’s challenge: A client’s cost seg study faces an IRS audit

C A S E S T U D YC O S T S E G R E G A T I O N

K A H N , L I T W I N ,

R E N Z A & C O . , L T D .

Afew years after KLR began work-

ing with Ernst & Morris

Consulting Group, Inc., they

received an Information Document

Request (IDR) from the IRS related to a

study for a complex medical office build-

ing in Lincoln, RI.

“We were surprised that, 18 months

after the completion of this cost segrega-

tion study, the IRS now wanted to audit it,”

Robert D’Andrea, CPA/MST, a principal at

KLR, said. “For this $4.4M building, the

E&M study had reclassified over $1.7M in

tax deferrals. I contacted Mike Morris

right away.”

E&M managing director Morris quickly

put D’Andrea’s mind at ease. “I assured

him that after doing more than

8,000 cost seg studies, we had

experienced the audit process

many times,” Morris said. “I

told him that every step we

take in our cost segregation

process ensures that we can

defend an audit efficiently and

successfully.”

Mor r i s a l so adv i sed

D’Andrea that the number of

IRS cost seg audits has

increased over the past few

years and that it was nothing to be anxious

about. “The IRS’s current audit guide

describes what should

be contained in a qual-

ity cost seg study,”

Morris continued. “By

ensuring that our stud-

ies comply with this

guide, we defend our

studies successfully.”

D’Andrea had first

met Mike Morris at a

conference of Leading

Edge Alliance (LEA)

accounting firms. It

w a s t h e r e t h a t

D’Andrea learned of the extensive experi-

ence that Ernst & Morris had in performing

hundreds of engineering-based cost seg

studies for LEA and CPAmerica

International firms. “I was also impressed

that Morris had a background with a

national accounting firm,” D’Andrea said,

“and that his team had come up through

the ranks working with numerous CPA

firms across the country.”

F I R M P R O F I L E :K A H N , L I T W I N , R E N Z A & C O . , L T D . , M A K I N G A D I F F E R E N C E A M O N G N E W E N G L A N D C P A F I R M S .

KLR, founded in 1975, is the largest accounting and business

consulting firm in Rhode Island and, according to Practical

Accountant magazine, the fastest-growing CPA firm in New

England. This 100-person firm provides its clients with work-

able, cost-effective solutions to an ever-expanding list of

accounting, tax, and business needs. KLR is a founding mem-

ber of the Leading Edge Alliance (LEA) and also a member of

Kreston International. These affiliations enable KLR to offer accounting services to clients

throughout North America and abroad.

“We work closely withthe CPA and their clientin deciding how aggres-sive the cost seg studyshould be, which ‘grayareas’ made sense, andassuring that the conclu-sions are defendable.This—and our provendocumentation process—set the stage for a smoothIRS audit defense.”

MIKE MORRISERNST & MORRIS

E&M’s audit process:Making it thorough anddefendable

In addition to conducting thorough engi-

neering-based cost seg studies, as standard

operating procedure, E&M professionals

create detailed files that include all the

construction cost data, color-coded draw-

ings, work papers, photographs, and other

documentation gathered during the study.

As Morris put it, “With this on file, we can

quickly provide our clients with a thor-

oughly detailed audit trail should they ever

need it.”

E&M’s paper-trail process ensures the

study documentation is comprehensive,

defensible, and easily retrievable. “The

files we provide our CPA clients clearly

substantiate any ‘gray area’ that the IRS

may call into question,” Morris added.

“After quickly retrieving our study files, we

carefully reviewed every item and prepared

a formal response to the IRS auditor.”

Though it proved unnecessary, E&M was

prepared to meet with the IRS auditor at

the building site.

The result: No adjustments tooriginal study, noadditional audits

“Just as they do while a cost seg study is

being performed, E&M provided quality

support and kept us informed throughout

the audit process,” D’Andrea claimed.

“They promptly responded to the IRS

inquiries in writing, providing a detailed

rebuttal that included in-depth explana-

tions justifying site and land improvements

totaling over $400,000,” he added.

The IRS was clearly impressed with

Ernst & Morris’ report. After reviewing

E&M’s response and supporting docu-

mentation, the IRS auditors closed the

investigation by concluding that the cost

seg study would be accepted as originally

submitted.

“By making it easy for the IRS auditor to understandthe rationale behind every decision and every claim,no adjustments were imposed.”MIKE MORRIS,ERNST & MORRIS

2

Mike Morris, Managing DirectorErnst & Morris Consulting Group, Inc.

“Based on E&M’s successfuldefense of this first audit, the IRSdetermined that cost-seg audits onsix other properties owned by thesame client were unnecessary.”

ROBERT D’ANDREA, CPA/MSTKLR

ROBERT D’ANDREACPA/MST

C A S E S T U D YC O S T S E G R E G A T I O N

A PROVENPROCESS: Key to defendingan IRS cost segregationaudit.

K A H N , L I T W I N ,

R E N Z A & C O . , L T D .

The ChallengeSuccessfully defending an IRS audit on a complex cost segregation study that had beencompleted for a CPA firm’s client a few years earlier.

The ProcessFollowing a deliberative, multi-phase approach when conducting cost segregationstudies. Having all supporting documents readily available to defend an IRS audit if oneis selected. Remaining current on all revenue procedures and tax law thereforemaintaining strict adherence should an audit occur.

The BenefitsA smooth audit process with 100% defensible material contained in the original costsegregation study. The IRS concluded no adjustments were necessary. Additional auditsfor the same client were deemed unnecessary. Improved the cash flow of the clientthrough tax deferrals.

14

Partnering with Ernst &Morris awards strongbenefits to both CPAfirms and their clients.

“Our CPA clients find partnering with us

to be as seamless as working with their own

staff,” Morris said. “In fact, we see our-

selves as being part of their team through-

out the cost seg process.”

KLR principal D’Andrea viewed a prime

benefit of partnering with E&M from

another perspective. “Their extensive

knowledge of current legislation, regula-

tions, revenue rulings,

court cases, building con-

struction, and engineering

provide us with thorough

and highly supportable cost

segregation analyses,” he

said. “That enables our

clients to maximize depre-

ciation benefits, decrease

current taxes, and improve

cash flow.”

CPA firms have found that, by partner-

ing with E&M, the client’s benefits of cost

segregation studies can outweigh their cost

by a factor of ten or more. “What’s more,”

Morris asserted, “it’s reassuring to our

partnering CPA firms and their clients that

every cost seg study we complete is sup-

ported by a defensible interpretation of

applicable and current

tax laws and regulations,

is thoroughly document-

ed, and is 100% audit

ready.”

“We saw first hand

what partnering with

E&M was all about by

the way they stood

behind their conclusions

during the audit process,” D’Andrea

summed up. “From day one, E&M’s policy

has been clear: should any cost segregation

study they perform become the subject of

an IRS audit, E&M will defend the study

until a satisfactory conclusion has been

reached, including 40 gratis hours. We pass

along that same kind of confidence to our

clients.”

C A S E S T U D YC O S T S E G R E G A T I O N

K A H N , L I T W I N ,

R E N Z A & C O . , L T D .

Ernst & Morris Consulting Group, Inc.SINCE 1993

2190 Dallas HighwayMarietta, Georgia 30064

i n f o @ c o s t s e g . c o m1 . 8 0 0 . C O S T S E G

w w w . c o s t s e g . c o m

Ernst & Morris Consulting Group, Inc.,

America’s oldest and largest firm dedicated

solely to performing cost segregation studies,

is staffed by professionals with over 100

years of combined experience in the fields of

engineering, audit, appraisal, construction,

and depreciation tax accounting. Since 1993,

E&M has performed more than 8,000 cost

seg studies—in all 50 states—enabling clients

to defer over $1 billion in taxes. Ernst &

Morris currently works with hundreds of CPA

firms nationwide and is the preferred cost seg

study provider for CPAmerica International, a

worldwide network of independent accounting

firms, and the National Society of

Accountants (NSA).

“We are confident thatE&M’s cost seg studyconclusions will standup to IRS scrutiny.Their successful IRSaudit experience isunmatched among costseg providers.”

ROBERT D’ANDREAKLR