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State of the Cost Segregation Industry
Promising Developments Underway
 
Written by: Greg Bryant, CCSP
Managing Partner | Bedford Cost Segregation, LLC

I am often asked by our clients and my peers to comment about the current state of the cost segregation industry. There is no question that the concept of cost segregation has reached the mainstream. What was once an extremely overpriced service provided primarily by what are now the Big 4 accounting firms, cost segregation has become quite common in the world of commercial real estate. The market has evolved significantly over the past several years resulting in fee reductions and an increase in providers. This may sound like good news, but there are some downsides.

The qualified cost segregation consultants (those with real bricks and mortar, real employees, real engineers, established track records, etc.) were able to breathe a sigh of relief when the IRS released the Cost Segregation Audit Techniques Guide (ATG) in April 2004. For those of us who were in the business prior to the release of this document, there was finally some confirmation that the engineering-based approach to cost segregation was not only valid, but preferred. We all felt that the ATG would raise the bar for our industry and essentially serve as constructive notice that the IRS intends to get more aggressive about challenging sub-standard work performed by unqualified firms. To some degree this has happened. Since the release of the ATG, many unqualified people who used to perform cost segregation studies on their own, now feel it is best to involve a specialist.

In a nutshell, the IRS makes solid reference to the credentials of a cost segregation consultant.  Chapter 4 of the ATG states that, “a study by a construction engineer is more reliable than one conducted by someone with no engineering or construction background.” The Service also comments on the methodology used by pointing out that studies based on the detailed engineering approach (from actual or estimated costs) produce more accurate and reliable results. While the Service falls short of making the engineering-based methodology a requirement, it is fairly obvious that this approach, when performed by a qualified engineer, will offer the highest quality report and most defensible position for the taxpayer.

While the evolution of our industry constitutes wonderful news for most commercial real estate owners, there have been some very disturbing trends over the past few years. Unfortunately, as more firms attempt to enter the cost segregation arena, unscrupulous characters and incompetent profiteers have emerged with the unintended consequence of jeopardizing our industry and the continued acceptance of this highly beneficial strategy.  The recent demise of a franchisor of cost segregation has left virtually hundreds of people with much lighter check books after having shelled out as much as $90,000 per person for the “privilege” of representing this firm. 

For those of you who share my concerns about the state of the cost segregation industry there has been a very promising (and long overdue) development under way for the past few years. The American Society of Cost Segregation Professionals (ASCSP) has been established as a non-profit organization in response to the growing needs for the establishment of credentials, technical standards, training and a code of ethics for the cost segregation industry.  

Membership is open to all cost segregation professionals and those who are interested in our industry.  Over the past three years, the society has developed technical standards and has conducted two rounds of testing.  There are three levels of Technical membership – Member, Senior and Certified.   Last November, ASCSP released their first Standard for Cost Segregation studies to its membership.  The Standard is currently undergoing updates and revisions based on member feedback and will soon be available to the general public. ASCSP will be presenting the revised Standard at the third annual conference in Orlando this October.

Bedford is proud to have participated in the inception of this important industry organization and many of our staff members continue to actively participate as board and committee members.

For more information please visit the ASCSP Website at www.ascsp.org.

 
Did you know?
 
Bedford has five Certified Cost Segregation Professionals (CCSPs) on staff. The CCSP designation is the highest level of certification available through the American Society of Cost Segregation Professionals.


Recent News
 
Mike D'Alessandro joins Bedford as Director of Business Development.