If a return claiming cost segregation deductions is examined, the depreciation does not get accepted or rejected on vibes. The IRS gives its people a published playbook, the Cost Segregation Audit Techniques Guide, and the exam follows its structure. Knowing that structure tells you exactly what your file needs to contain years before any letter arrives.
The examiner's checklist
The guide directs the examiner to evaluate the study itself before arguing about any single asset. The threshold questions: does the study reconcile, meaning every allocated dollar ties back to the total depreciable basis on the closing statement; is the land allocation defensible; what methodology produced the component costs, with approaches built on actual cost records ranked stronger than pure estimation; was the preparer qualified and the property actually inspected or documented; and does each classification into 5, 7, or 15 year property cite support under MACRS class lives in IRS Publication 946 and the relevant case law. A study that passes these gates narrows the exam to a handful of judgment calls. A study that fails them puts the entire reclassification on the table.
What you will be asked to produce
Expect document requests for the full study report, the settlement statement, renovation invoices and contracts, the depreciation schedules, and any Form 3115 with its section 481(a) computation. This is why the report and its underlying records belong in your permanent file for the whole holding period plus open statute years, not in a contractor's email thread.
A worked example
An examiner questions $140,000 of 15-year land improvements on a $1,100,000 retail property: paving, site lighting, and fencing. The study includes a site plan, photos of each improvement, and unit costs tied to an identified estimating method, and the classifications match the land improvement class in Publication 946. Result: no change on those assets. In the same exam, $30,000 classified as 5-year dedicated electrical cannot be traced to any panel schedule or load analysis, and the examiner moves it back to 39-year property. The adjustment costs some deferral, interest applies to the resulting underpayment, and because the rest of the study was substantiated, no accuracy-related penalty under section 6662 is asserted.
Outcomes and downside
Adjustments reverse the timing benefit on the reclassified assets and carry interest. Penalties under section 6662 generally require negligence or a substantial understatement, which is where unsupported promoter-style studies end up. A conservative, documented study bounds your downside to a timing correction.
Where Amadae fits
Amadae does not perform studies and does not represent that a screening estimate would survive an exam; the screen exists to decide whether an engineering study is worth buying. What Amadae does control is the return side: depreciation schedules that match the report exactly, a correctly computed Form 3115 catch-up for look-backs, and a clean document trail, which is most of what an examiner ever asks to see.