By John J. Cummings, JD

 
Alright, so you just bought or built a commercial property. Maybe it’s a 70-room hotel or a 5-star resort or even an enormous office complex. Whether you spent $5 million or $500 million, chances are really good that you need to do a proper cost segregation study to ensure maximum and optimal acceleration of depreciation (maximum up front tax deductions and saving). You already know this in theory. But, depending on the type of property you’re depreciating, you may not realize that you are also throwing money away if you don’t properly segregate the assets within that building for future renovations and abandonment deductions that result from those renovations. Additionally, accelerating tax deductions without proper support could put you in the penalty box with the IRS, when it’s easy to avoid that trap.

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Did you know that contractors who provide energy certification for their clients have the potential to secure more jobs?

At Engineered Tax Services (ETS), we partner with contractors nationally to provide independent, third-party certification as required by the IRS for existing projects, while also providing opportunities for new business.

Our experienced team of engineers can help you assess past, current and future projects for tax benefits and guide you and your clients through the certification process. Through a mutually-beneficial relationship with ETS, you will have a competitive edge by earning repeat and new business over contractors who cannot offer their clients the same energy tax benefits certification. Our technical expertise in energy accreditation is unmatched. Our LEED AP designation strengthens and adds depth to the ETS experience and qualifications under EPACT while supporting energy efficiencies under LEED. We are approved for the Energy Efficiency Certification Process so you can start winning more jobs and increase profitability for your business immediately.

Decrease tax liabilities and increase cash flow for energy-efficient improvements and other investments. ETS is a licensed engineering firm that works nationally with real estate developers, owners, tenants and designers (architects, builders, engineers, lighting contractors, HVAC contractors, roofing contractors) to provide the below IRS ordained tax incentives:

Energy Policy Act 179D Tax Deductions
When a new building is constructed or an existing building is renovated since January 1, 2006, the building owner or tenant may be eligible for a Federal Tax Deduction of up to a $1.80 per square foot. The benefit goes to the designer(s) if it is a government- or non-profit-owned building. Most new construction and renovations comply with the deferral requirements. The tax benefits are for new energy-efficient:

• Lighting
• HVAC systems
• Building envelope, including insulation, roof and windows

The IRS requires an independent, third-party engineering firm with the qualified software to undertake the certification. ETS specializes in the certification required by the IRS to take advantage of these tax benefits.

Cost Segregation Studies
ETS assists real estate owners and tenants who have built, purchased or renovated in the last 15 years. There is an opportunity to accelerate an average of 35% of the depreciation of the building and its improvements with our engineering studies. The IRS says, “It is the Time Value of Money.” The cost segregation study depreciates the building by segments into 5, 7, 10 or 15 year property. The results are increased cash flow and NOI.

Abandonment Studies
When you undertake demolition or renovate a building and tear out old lighting and HVAC units and other building parts, these assets are abandoned and as such their book value can be treated as a business deduction, which also increases your cash flow.

Important: consider these tax strategies before any demolition and/or renovation is completed or you may lose this opportunity.

When you re-light a building you create both an opportunity for the Energy Tax Deductions and the Abandonment Study. Excess lighting (eliminated with the new energy-efficient system) can be depreciated faster than the typical 39 years, and so you maximize your tax strategies and save money.

Contact us for a COMPLIMENTARY initial feasibility analysis

To learn more about how ETS is helping CPAs, contractors, real estate investors and many others take advantage of valuable energy-based tax benefits, or to request detailed information, please contact us at 1.800.236.6519.

Millions of dollars in tax benefits are frequently buried
like hidden treasure within your firm’s client records.

Engineered Tax Services (ETS) works with you to uncover these treasures to provide additional revenue for your firm and substantial tax savings for your clients.

Real estate clients rely on your expertise to provide them with tax strategies, techniques for maximizing revenue and expense reduction alternatives. Our experience shows that a quick and easy analysis of your clients’ depreciation schedules will assist you in generating significant tax savings for clients, building stronger client loyalty and developing additional long-term revenues for your firm. Our simplified process allows us to do this without any capital investment on your part and very little time commitment from your staff.   

Step 1 – Data Mining
The first step is to analyze your current client files to identify which clients have real estate holdings. Typically, in about an hour, your administrator can run a report through your tax software to generate a list of clients with real estate so that depreciation schedules can be run. Within a few hours, depreciation schedules are electronically redacted and printed with client numbers for identification purposes and forwarded to us for independent analysis.

Step 2 – Benefit Analysis
Upon receipt of the depreciation schedules, we will perform a benefit analysis to determine cost segregation and energy opportunities for each client. Within a week, qualified leads and estimated tax benefits for each will be identified.  Based on a firm your size, we anticipate discovering between 30 – 75 opportunities to be culled from the analysis process. We return the detailed estimates of the valuable tax savings identified to you and set up a conference with you and your partners to prepare a notification to qualifying clients.

Step 3 – Client Communications and Engagement
The next step is to communicate with the clients identified for cost segregation and energy opportunities. The timeline on this phase varies depending upon the availability of each client and partner, but generally takes between one and four weeks. In our experience, clients warmly welcome the news that additional tax savings are possible. We can handle the benefit discussions with clients or support you in your efforts. Marketing materials as well as ETS professionals may be available to help you with client communications.

Step 4 – Reporting
Once the engagement letters have been signed and received, we will prepare IRS-sanctioned reports and studies for each identified client. The cost segregation studies and energy reports as engaged by clients identified in the analysis are typically completed and delivered within 45 days from onset of the engagement.

Total Process Time:
90 Days to Treasures

The beauty of the Hidden Treasures assessment program is that you can:

• Create a new revenue stream
• Obtain new clients
• Solidify existing relationships
• Enhance your reputation
• Improve your firm’s competitive positioning in the marketplace
• …all with no capital needed…

We welcome the opportunity to explore the tremendous return on investment your firm’s participation in the Hidden Treasures program may yield. Please contact us for more information or to schedule a complimentary presentation.

Contact us at 1.800.236.6519 or visit www.engineeredtaxservices.com.

TAX FLASH:  If there is a net loss generated from the cost segregation study, that loss can be carried back.  A net operating loss (NOL) is the excess of business deductions (computed with certain modifications) over gross income in a particular tax year. The loss can be deducted, through an NOL carryback or carryover, in another tax year in which gross income exceeds business deductions.

In general, NOLs may be carried back two years and forward 20 years. However, if the taxpayer qualifies, the NOL can be carried back as far as 3, 4 or 5 years. The NOL is first carried back to the earliest tax year for which it’s allowable as a carryback or a carryover, and is then carried to the next earliest tax year. A taxpayer may elect to forego the entire carryback period for an NOL and instead carry it forward. This is significant because if there is tax dollars paid in prior years and the cost segregation study takes a company from being profitable for tax purposes to being in a net operating loss situation, the company can obtain tax refunds from the tax years still open by statute.

By Don McDougall

With Circular 230, tax preparers were made responsible for decisions that were not theirs and are now acting as much as anything else as the first line of enforcement. EPACT certification creates a major issue for CPAs, as many do not have enough experience with the process to protect themselves and their firms. EPACT has provisions to prevent fraud that are embedded in the regulations. Under Circular 230, it becomes the CPA’s responsibility to confirm that the requirements have been met. In order to protect your firm and yourself, please read on.

WARNING! EPACT is not just like Cost Segregation. EPACT generates a tax deduction; Cost Segregation accelerates the depreciation of an asset by giving it a shorter life. If you have been told they are just versions of the same accounting issue, you need to beware.

Who can do your reports? – More importantly, who can sign your reports? The reports MUST be completed by a licensed firm or individual. This means both the field verification and the energy calculations must be done by licensed people.

The reports themselves must be signed by a licensed firm (engineering or contactor) and should contain copies of the licenses for the individuals who did the work. Consider an example of a company that has CPAs on staff. Exxon-Mobile has CPAs on staff, but Exxon cannot do your tax returns. Likewise, a CPA firm or consulting firm cannot sign your EPACT certification. The reports may completed by firms that are not licensed engineering firms, but must be signed by the licensed engineer who actually did the work. The firm that subcontracted them or hired them cannot sign the report. In addition, that engineer carries 100% of the liability for any errors. Like the example above, you can have a friend who is a CPA that works at Exxon to do your taxes, but he cannot do it on Exxon letterhead.

There are also issues of liability and coverage in the event of an audit. If the firm is not licensed as an engineering firm, not only can they not sign the work, they also cannot defend it to the IRS. This frequently leaves you, their tax-preparing CPA, holding the liability bag. Who signs the reports matters to you even more than it matters to the IRS (because there will be consequences for YOU, not the IRS).

In addition, ALL of the field work and the calculations must be completed by licensed individuals. A common mistake many Cost Segregation firms make is using their non-licensed staff to complete the field inspections to save money. This is clearly not allowed under the guidelines: all work must be completed by licensed individuals.

Another caveat in the certification process: the firm performing the EPACT Certification may not be related to any part of the transaction. For example, a lighting contractor may not certify his/her own work. Contingency fees that rely on the conclusions of the certification to set the cost of the study are also to be avoided.

Summary – The 179D Certification must be signed by a licensed engineering firm, or a licensed individual. Reports not completed by a licensed engineering firm put you (the Tax Preparer) at risk. The firm completing the certification also cannot be involved in the installation or design of the properties that are being certified.

Follow these simple guidelines and you will protect your licensure as well as your firm.

Don McDougall is a National Director with Engineered Tax Services. He is responsible for operations on the West Cost with some national efforts as well. Don is an innovator in the fields of valuation and tax-based engineering. He has proudly contributed and pioneered many of the commonly-integrated services and components used in the industry. He has been providing cost segregation services since before cost segregation existed, having worked heavily in the field of investment tax credits (the depreciation services that pre-date cost segregation).

By James K. Zahn, FALA, Esq.

Recently, I received a call from my accountant. She called to inquire if I have ever had one of my architect clients attempt to receive a § 179D Deduction for Energy Efficient Commercial Buildings granted under Title 26 of the US Federal Regulations (fondly known as the “IRS Tax Code”). I was unaware of this particular section of the Code until her call, as none of my clients have ever asked about it or brought it to my attention. This article will concentrate on publicly-owned commercial buildings, because that’s where the architect is really in a position to greatly benefit from this unusual regulation. 

According to the US Government Printing Office, the IRS Tax Code is 13,458 pages long, and is contained in twenty volumes available for purchase at only $974, plus shipping and handling. Section 179D is a very small provision buried within a voluminous document and can easily be missed. I looked up § 179D on the internet and was astounded by what I found. This particular section of the tax code is a must read for all practicing architects and their accountants!

Read the Full Article for information every architect should know.

For Immediate Release

For more information on ETS, please contact 800-236-6519 email info@engineeredtaxservices.com or visit www.engineeredtaxservices.com

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Was a Cost Segregation Study or Energy Study rule out due to a Net Operating Loss at the personal tax level of the shareholder/partner? Depending on the size of the client’s Individual Retirement Account (IRA) proposing a potential ROTH IRA conversion of their IRAs could provide not only significant income tax planning opportunities, but also can provide an avenue for a study to be viable.

With the recent turmoil in the stock market, many people would rather not think about taking a hard look at investment strategies for retirement. However, with current legislation that came into effect in 2010, along with possibilities of tax rates increasing in the near future, taxpayers can make some smart choices now that can really pay off at retirement age.

Gross Income Limitation Removed

Prior to 2010, individuals can only convert a traditional IRA to a Roth IRA if their modified adjusted gross income is $100,000 or less. For 2010 and forward, taxpayers can convert their traditional IRAs (and funds from certain other eligible retirement plans) to a Roth IRA with no gross income limitation. Therefore, no matter what the income level of the individual was, the Roth IRA conversion is available. The new legislation also removed the requirement for married couples to file jointly to be able to make this conversion.

Traditional IRA vs. Roth IRA

Most people are familiar with IRAs. Some are even aware that there are two kinds of IRAs: traditional IRAs and Roth IRAs. In a traditional IRA, participants can contribute $5,000 per year ($6,000 if age 50 or older). Whether or not the contribution is deductible depends upon the adjusted gross income of the taxpayer(s). If you are allowed to deduct the contribution, then any distributions – including your original contributions plus earnings – are taxable. If you are not allowed to deduct contributions, then only the earnings portion of any distribution is taxable.

In a Roth IRA, contributions are not deductible. However, all distributions – whether from original contributions or earnings – are not taxable. Therefore, taxpayers who convert a traditional IRA to a Roth IRA will not need to pay tax when the Roth IRA distributions are made. Also, a Roth IRA has no minimum distribution requirement when the account holder turns 70 1/2, as does a traditional IRA.

Tax Considerations

The initial conversion does have tax effects. An IRA conversion is treated as a taxable distribution, taxed as ordinary income at your marginal tax rate. Although this accelerates the taxable income that you would eventually pay on distributions from a traditional IRA, the future appreciation in the account grows tax-free. Also, for conversions made in 2010, a taxpayer can spread the income over two years: 2011 and 2012. This gives the taxpayer time to put aside money to pay the tax due without having to liquidate any of the retirement account assets.

After 2010, conversions can be made, but the tax will be due with the tax return filed for the year of conversion. Keep in mind that after the tax on the conversion is paid, all of the growth in the account can be distributed tax-free after the taxpayer reaches age 59 1/2. (Please note that there is also a five-year holding period that must be reached before tax-free distributions of earnings can be made.) Also, if you convert at the beginning of a tax year (say January 2010), you have until you file your tax return for that year (up to October 15, 2011 if you extend your 2010 tax  return) to recharacterize the converted funds if the account balance declines.

How does this relate to Cost Segregation Studies?

If you have a large IRA that can be converted to a ROTH, the deductions that a cost segregation study or energy study would provide, excess deductions can be used to offset the income earned on the ROTH conversion.

For example, if you have a personal net operating loss of $500,000 and an IRA of $700,000 the whole account could be converted and $200,000 additionally would be offset from the excess deductions provided by a cost segregation study or energy study.

For more information, please contact Engineered Tax Services by dialing 800-236-6519 or email info@engineeredtaxservices.com

New York – Feb. 8 – Patrick Pruett’s Alliance of Professional Association held their Real Estate and Construction Advisors Association Teleconference for its internal members. The teleconference was centered on successful funding practices for contractors and provided a detailed discussion on LEED and green building design. It also addressed concerns within the CPA community and their role in the reporting requirements with contractor clients.

Joel Ackerman, Director of Business Development for Engineered Tax Services was invited as a presenter in the roundtable conference. He discussed LEED and Green Building incentives, including the benefits of LEED certification in construction and its impact on project costs, tax reporting and rebates. Mr. Ackerman described to the audience the steps necessary for LEED certification and the process to qualify for Section 179D. ETS specializes in providing a wide spectrum of engineered accounting solutions such as energy tax credits, cost segregation studies, construction audits and insurance appraisals. ETS is a licensed engineering firm with professionally staffed engineers who marry the science of engineering with the principles of tax and accounting to arrive at financial solutions resulting in increased cash flow, minimized tax payments and increased ROI. ETS works in collaboration with clients’ CPA firm to ensure the process of obtaining your tax benefits follows legislative guidelines. For more information, please contact us at 800-236-6519 or email us at info@engineeredtaxservices.com