Cost Segregation Study Engagement Letter

COST SEGREGATION STUDY ENGAGEMENT LETTER

[DATE]

[CLIENT LEGAL NAME]

[CLIENT ADDRESS]

Re: Proposed cost segregation study for [PROPERTY / PROJECT]

Dear [AUTHORIZED CLIENT REPRESENTATIVE]:

This letter records the selected scope, source records, responsibilities,
deliverables, and commercial terms for the proposed study. Complete every
bracketed item. Attach the tax-adviser decision schedule before signature.

1. Engagement Particulars

2. Purpose and Controlling Tax Review

Section 167(a) provides the general depreciation-deduction rule for qualifying
property used in a trade or business or held for producing income. For tangible
property governed by § 168, subsection (a) requires the applicable depreciation
method, recovery period, and convention. Section 168(c) includes 5-, 7-, and
15-year periods and the 27.5- and 39-year periods for the categories named
there.

The study will identify facts and propose classifications for review by the
client's tax adviser. It will not decide eligibility, basis, placed-in-service
date, property class, method, convention, deduction, election, accounting-method
change, return reporting, state conformity, recapture, penalty exposure, or any
other tax result unless the signed scope expressly assigns that work to a
qualified professional.

3. Selected Scope

3.1 Included services

Select and describe each included service:

• ☐ property and project document inventory
• ☐ site visit on [DATE] by [PROFESSIONALS]
• ☐ interviews with [OWNER / CONTRACTOR / ARCHITECT / ACCOUNTANT / OTHER]
• ☐ reconciliation of costs to [LEDGER / CLOSING / CONSTRUCTION RECORDS]
• ☐ asset identification and description
• ☐ factual analysis relevant to proposed tax classification
• ☐ allocation of direct and indirect costs using the selected methodology
• ☐ proposed class-life and recovery-period schedule for tax-adviser review
• ☐ draft report and client comment process
• ☐ final report and supporting schedules
• ☐ support during tax-return preparation, limited to [DETAILS]
• ☐ examination support under a separate written authorization / addendum
• ☐ other: [________________________________]

3.2 Excluded services

Unless added by a signed amendment, the provider will not perform:

• tax-return or Form 3115 preparation or filing;
• a legal opinion, appraisal, audit, attestation, or assurance engagement;
• title, environmental, zoning, code, accessibility, or permit review;
• state or local tax analysis;
• tax controversy representation or testimony;
• a guarantee of tax savings, deduction timing, or IRS acceptance; or
• services outside [PROPERTY / PROJECT / TAX YEARS].

4. Methodology Record

IRS Publication 5653 is an examination-oriented Audit Technique Guide, not law
or an IRS-required standard. The publication says the Service has established
no requirements or standards for preparing cost segregation studies. It
identifies several approaches and cautions that its own technical accuracy is
not guaranteed after its February 2025 revision date.

The parties select a methodology for this project based on available records,
cost, reliability, and intended use—not by labeling it “IRS compliant.”

Selected methodology approved by: [________________________________]

Approval date: [__/__/____]

5. Client Source Records

The client will provide complete, readable records and identify gaps,
estimates, related-party amounts, reimbursements, credits, allowances, and
duplicate costs.

Missing-record assumptions authorized by: [________________________________]

6. Deliverables

6.1 Draft package

The draft will include the selected items:

• ☐ executive summary and scope;
• ☐ property and project description;
• ☐ methodology and source-record description;
• ☐ asset schedule with proposed descriptions, costs, and classifications;
• ☐ cost reconciliation and treatment of estimates / indirect costs;
• ☐ assumptions, exceptions, unresolved items, and limitations;
• ☐ photographs, drawings, calculations, and interview record;
• ☐ tax-adviser decision list; and
• ☐ other: [________________________________].

6.2 Review and final package

Client comments are due by [DATE]. The provider will resolve or identify each
comment and deliver [PDF / WORKBOOK / OTHER] by [DATE]. The final package is
addressed to [CLIENT / TAX ADVISER] for [IDENTIFIED PURPOSE].

No third party may rely on the work unless the provider, client, tax adviser,
and counsel approve that reliance in a signed writing defining the recipient,
purpose, scope, and limits.

7. Tax-Adviser Decision Schedule

The client's tax adviser—not an unchecked template—must decide and document the
current-law treatment for the actual taxpayer and tax year.

Do not copy a bonus percentage, acquisition-date cutoff, revenue procedure,
automatic-change number, retention period, or filing conclusion from an earlier
engagement. Record the authority current for the taxpayer's filing.

8. Provider and Client Responsibilities

8.1 Provider

The provider will:

• perform only the selected scope using the stated methodology;
• document material assumptions, estimates, limitations, and data gaps;
• reconcile allocated costs to the agreed control total;
• identify unresolved classification or tax questions for the tax adviser;
• protect client information under the completed data terms; and
• correct discovered factual or calculation errors under [PROCESS / PERIOD].

8.2 Client

The client will:

• provide accurate, complete records and authorized access;

• identify owners, related parties, reimbursements, prior deductions, and
  changes affecting the property;

• obtain tax, legal, accounting, valuation, and engineering advice outside the
  provider's selected scope;

• review the draft and identify errors or omissions by [DATE];

• decide, through its tax adviser, whether and how to use the report; and
• preserve source records and the final work under the approved retention plan.

The provider may pause work when necessary records, access, approvals, or
payments are missing after written notice describing the needed cure.

9. Fees, Expenses, and Changes

No percentage-of-tax-benefit or other contingent fee is selected by this form.
If proposed, qualified tax counsel must first approve the arrangement under
all professional, tax-practice, licensing, and governing-law rules and replace
this sentence with a compliant signed addendum.

A scope, property, tax year, methodology, assumption, deadline, or deliverable
changes only through a written change authorization signed by [AUTHORIZED
PERSONS].

10. Confidentiality, Data, and Records

Do not promise absolute confidentiality or deletion that conflicts with
professional duties, insurer requirements, legal process, backup systems, or a
preservation hold. Counsel must tailor these terms to the provider, client,
data, and governing law.

11. Professional Status and Reliance Limits

Provider disciplines and licenses involved: [________________________________]

Responsible professionals: [________________________________]

Applicable professional standards selected by qualified reviewer:
[________________________________]

The IRS Audit Technique Guide may inform documentation and quality review, but
is not an official pronouncement or a professional standard. The report depends
on the identified facts and assumptions. Tax results can change with law,
guidance, elections, taxpayer attributes, later transactions, or an examining
authority's factual and legal conclusions.

12. Term, Termination, and Disputes

This engagement begins on [DATE] and ends upon [FINAL DELIVERY / DATE], unless
changed or terminated under this section.

Either party may terminate by [NOTICE METHOD / PERIOD]. The notice will address
work in process, source records, final or partial deliverables, fees, transition
assistance, confidentiality, and provisions that survive.

Counsel-approved governing law: [________________________________]

Counsel-approved forum and venue: [________________________________]

Negotiation / mediation / arbitration terms, if any: [ATTACH COUNSEL-APPROVED
RIDER OR STATE NONE].

This form includes no indemnity, liability cap, damages exclusion, arbitration
agreement, jury waiver, prevailing-party fee clause, or injunctive-relief term.
Add one only through a counsel-approved rider after reviewing enforceability,
professional rules, insurance, bargaining context, and the chosen law.

13. Entire Engagement and Signatures

This letter and its signed schedules / change authorizations comprise the
engagement terms identified by the parties. An order-of-precedence rule for
other documents is: [________________________________].

No tax position, classification, election, return instruction, or third-party
reliance is approved merely by signing this commercial engagement.

SERVICE PROVIDER

Legal name: [________________________________]

By: [________________________________]

Name / title: [________________________________]

Date: [__/__/____]

CLIENT

Legal name: [________________________________]

By: [________________________________]

Name / title: [________________________________]

Date: [__/__/____]

TAX-ADVISER ACKNOWLEDGMENT OF DECISION SCHEDULE

The undersigned acknowledges responsibility only for the decisions expressly
assigned and completed in Section 7, subject to the adviser's separate
engagement.

Tax adviser / firm: [________________________________]

By: [________________________________]

Date: [__/__/____]

Schedule A — Property and Project Inventory

Schedule B — Open Issues

Schedule C — Change Authorization

Change number: [________]

Requested change: [___________________________________________________________]

Effect on fee, timing, methodology, assumptions, and deliverables:
[____________________________________________________________]

Provider approval / date: [________________________________]

Client approval / date: [________________________________]

Tax-adviser or counsel approval, if required: [________________________________]