COST SEGREGATION STUDY ENGAGEMENT LETTER

PROFESSIONAL SERVICES AGREEMENT

ENGAGEMENT LETTER

[DATE]

[CLIENT NAME]
[CLIENT ADDRESS]
[CITY, STATE ZIP]

Re: Engagement for Cost Segregation Study
Property: [PROPERTY NAME/ADDRESS]

Dear [CLIENT NAME]:

Thank you for selecting [FIRM NAME] to perform a cost segregation study for the property identified above. This letter confirms the terms and objectives of our engagement and the nature and limitations of the services we will provide.

SECTION 1: SCOPE OF ENGAGEMENT

1.1 Purpose

[FIRM NAME] will perform a detailed engineering-based cost segregation study (the "Study") for the purpose of identifying and reclassifying building components into shorter recovery period asset classes for federal income tax depreciation purposes under IRC § 168.

1.2 Property Information

1.3 Study Components

The Study will include:

☐ Engineering analysis to identify and classify building components
☐ Detailed cost allocation to appropriate asset classes
☐ Calculation of depreciation benefits (current and future years)
☐ Supporting documentation for tax return positions
☐ Written report meeting IRS Audit Techniques Guide standards

Asset Classes to be Analyzed:

SECTION 2: METHODOLOGY

2.1 Approach

Our methodology complies with the IRS Cost Segregation Audit Techniques Guide and includes:

☐ Detailed Engineering Approach - Preferred method using actual cost records and engineering analysis

☐ Sampling or Modeling Approach - Using representative samples where appropriate

☐ Residual Estimation Approach - Using available data with engineering estimates

2.2 Site Visit

☐ A site visit by our engineering team is included
☐ No site visit; study based on documentation provided

Site Visit Date (if applicable): [DATE]

2.3 Documentation Review

We will review the following documentation:

☐ Construction contracts and change orders
☐ Architectural and engineering drawings
☐ Invoices and payment records
☐ Appraisals
☐ Prior depreciation schedules
☐ Certificate of occupancy
☐ Property tax records
☐ Purchase agreement (if acquired property)
☐ Cost breakdown or construction budget

SECTION 3: DELIVERABLES

Upon completion, we will provide:

3.1 Written Report Including:

☐ Executive summary of findings
☐ Property description and analysis
☐ Methodology description
☐ Detailed asset classification schedules
☐ Depreciation calculation (current and catch-up)
☐ Present value analysis of tax benefits
☐ Supporting photographs (if site visit performed)
☐ Qualifications of professionals involved

3.2 Supporting Schedules:

☐ Asset-by-asset listing with costs and classifications
☐ Depreciation schedules by asset class
☐ IRC § 481(a) adjustment calculation (if applicable)
☐ Form 3115 support (if change in accounting method required)

3.3 Format:

☐ PDF report
☐ Excel schedules
☐ Hard copy: [NUMBER] copies

SECTION 4: TAX TREATMENT AND ACCOUNTING METHOD

4.1 Bonus Depreciation (2026):

Following the One Big Beautiful Bill Act (OBBBA) of 2025:

☐ Analysis will include bonus depreciation calculation
☐ Client elects out of bonus depreciation for [ASSET CLASS]

4.2 Change in Accounting Method:

If the property was placed in service in a prior year:

☐ Form 3115 (Application for Change in Accounting Method) required
☐ Automatic change under Rev. Proc. 2023-24 (or successor)
☐ IRC § 481(a) adjustment required

Proposed Tax Year for Change: [YEAR]

SECTION 5: CLIENT RESPONSIBILITIES

Client agrees to:

5.1 Provide all requested documentation in a timely manner

5.2 Designate a contact person to coordinate information requests:
- Name: [NAME]
- Phone: [PHONE]
- Email: [EMAIL]

5.3 Provide access to the property for site inspection (if applicable)

5.4 Review draft report and provide timely feedback

5.5 Engage a tax professional to prepare or review tax returns

5.6 Maintain supporting documentation for at least 7 years

SECTION 6: PROFESSIONAL RESPONSIBILITIES AND LIMITATIONS

6.1 Our Responsibilities:

• Perform the Study with professional care and competence
• Use qualified engineers and tax professionals
• Provide a defensible, well-documented report
• Respond to reasonable IRS inquiries regarding the Study

6.2 Limitations:

• We do not provide legal advice or tax return preparation
• We do not guarantee specific tax savings
• We do not guarantee the IRS will accept all positions taken
• We are not responsible for Client's tax return positions
• The Study is based on information provided by Client

6.3 Professional Standards:

The Study will be performed in accordance with:

☐ IRS Cost Segregation Audit Techniques Guide
☐ AICPA Standards
☐ [STATE] Professional Engineering Standards (if applicable)

SECTION 7: TIMELINE

Estimated Total Timeline: [NUMBER] weeks from receipt of complete documentation

SECTION 8: FEES AND PAYMENT

8.1 Fee Structure:

☐ Fixed Fee: $[AMOUNT]

☐ Contingent Fee: [PERCENTAGE]% of first-year tax benefit
(Subject to AICPA and Circular 230 limitations)

☐ Hourly Rate: $[RATE]/hour with estimated budget of $[AMOUNT]

8.2 Payment Terms:

☐ Due upon delivery of final report
☐ 50% retainer upon signing; balance due upon delivery
☐ Net [30] days from invoice date
☐ Other: [DESCRIBE]

8.3 Additional Services:

The following services are not included and will be billed separately:

• Preparation of Form 3115
• Tax return preparation
• IRS audit defense
• Additional properties
• State tax analysis

Hourly Rate for Additional Services: $[RATE]/hour

SECTION 9: CONFIDENTIALITY

All information provided by Client shall be treated as confidential and shall not be disclosed to third parties except:

• As required by law or professional standards
• To our employees, contractors, and professional advisors
• With Client's written consent

SECTION 10: INDEMNIFICATION

10.1 Client Indemnification:

Client agrees to indemnify [FIRM NAME] from claims arising from:

• Inaccurate or incomplete information provided by Client
• Client's failure to maintain required documentation
• Client's tax return positions beyond the scope of this engagement

10.2 Limitation of Liability:

[FIRM NAME]'s liability under this engagement shall not exceed the fees paid for the Study.

SECTION 11: DISPUTE RESOLUTION

Any disputes arising from this engagement shall be resolved through:

☐ Mediation
☐ Binding arbitration in [LOCATION]
☐ Litigation in [JURISDICTION]

SECTION 12: TERMINATION

Either party may terminate this engagement upon [30] days written notice. Client shall pay for services rendered through the date of termination.

SECTION 13: ACCEPTANCE

Please indicate your acceptance of this engagement by signing below and returning a copy to our office.

This engagement letter, together with any attachments, represents the entire agreement between the parties.

[FIRM NAME]

By: ___________________________________

Printed Name: [NAME]

Title: [TITLE]

Date: [DATE]

CLIENT ACCEPTANCE

I have read and agree to the terms of this engagement letter.

[CLIENT NAME]

By: ___________________________________

Printed Name: [NAME]

Title: [TITLE]

Date: [DATE]

ATTACHMENTS

☐ Schedule A - Information Request List
☐ Schedule B - Property Description
☐ Schedule C - Professional Qualifications

SCHEDULE A - INFORMATION REQUEST LIST

Please Provide the Following:

Construction/Acquisition Documents:
☐ AIA contract documents
☐ Contractor payment applications
☐ Change orders
☐ Certificate of occupancy
☐ Purchase agreement (if acquired)
☐ Closing statement (HUD-1 or equivalent)

Design Documents:
☐ Architectural drawings (as-built preferred)
☐ Mechanical drawings
☐ Electrical drawings
☐ Site/civil drawings
☐ Specifications

Cost Information:
☐ Contractor invoices
☐ Equipment invoices
☐ Tenant improvement costs
☐ Soft costs (architecture, engineering, etc.)
☐ Prior depreciation schedules

Other:
☐ Property tax assessment
☐ Appraisal
☐ Photos of property
☐ Property management information

This template is provided for informational purposes and should be reviewed by qualified legal and tax counsel before use.