Site Inspections and Documentation
A site inspection records what is actually installed, how it is attached, and what it serves. The IRS audit guide recommends one for every quality study. Photographs, notes, and interviews create the evidence a reviewer will ask for. Drawings show design; the visit shows what was built.
Educational information, not tax advice.
Updated 2026-10-14
Key takeaways
- Classification turns on facts — attachment, function, and use — that drawings alone may not show.
- Photographs, notes, and interviews create the evidence a reviewer will ask for.
- Documents should tie each component to its cost source.
- Before-and-after photographs of site work help support land versus improvement allocations.
- If a component was classified from documents alone, the report should say so.
The IRS audit guide states that a field inspection is recommended for all quality studies. For new construction it recommends before-and-after photographs; for acquisitions, an inspection is how the preparer learns what the property actually contains.
Inspections matter because the legal tests are factual. Whether carpet is glued or tacked, whether a circuit serves one machine or general outlets, whether a light fixture is the primary light source — these decide the class, and they are visible on site.
Treas. Reg. §1.48-1 and the Whiteco factors ask about permanence, attachment, and function. Those questions cannot be answered from a purchase price alone. The inspection is how the file shows what the regulation is being applied to.
Documentation is the other half. Contracts, pay applications, invoices, drawings, appraisals, and leases tie the observed item to a cost. An inspection without a cost source is a list of things. A cost source without an inspection is a list of dollars.
Educational information, not tax advice. The guide is examiner guidance. It does not create a required inspection checklist or an “IRS-approved” site visit.
A study written from a closing statement and a marketing floor plan, with no visit and no photographs, leaves the permanence and function tests unsupported. That file may still contain a schedule. It does not contain the facts the regulation asks for.
What is typically recorded
Room-by-room photographs; equipment and its dedicated utility connections; floor and wall finishes; lighting types; site paving, curbs, fencing, and landscaping; and any signs of removed or replaced components. Measurements support quantity take-offs.
Notes should say what an item serves. “Panel A feeds the walk-in cooler” is a classification fact. “Electrical — various” is not. Function is how dedicated equipment wiring is separated from general building distribution. The same is true of plumbing: a dedicated gas or waste line to a kitchen appliance is a different fact from restroom plumbing that serves the building.
Site photographs should show the condition of paving, the presence of fencing and dumpster pads, and whether landscaping would be destroyed if a related depreciable asset were replaced. Those facts support the land versus 00.3 split.
Interviews and documents
The audit guide lists interviews with appropriate parties — owners, facility managers, contractors — as an element of a quality study. Useful documents include drawings, specifications, contracts, pay applications, invoices, appraisals, and leases.
A facility manager can explain which circuits were added for equipment and which finishes have already been replaced. A contractor can confirm unit prices that a database would only estimate.
Leases show who paid for interior improvements. That ownership fact decides whose basis the work is, and whether QIP is even the tenant’s or the landlord’s question.
Keeping the record
The report should include the photographs and a description of what was inspected and when. If a component was classified from documents alone, the report should say so.
Exhibits in the guide’s quality-report list include client cost sources, cost-source reconciliation, and photographs or videos. Those exhibits are how a later reviewer tests the narrative.
If access was limited — occupied units, locked mechanical rooms, a night-only visit — the assumptions section should say so. Hidden conditions are a limiting condition, not a license to guess. A later visit that fills those gaps should be dated in the file so the CPA knows which photographs support which lines.
New construction versus acquisition
On a new project, the inspection confirms that the drawings match what was built and captures site work that will be covered or graded over. Before-and-after photographs are the guide’s recommended support for land-preparation allocations.
On an acquisition, the inspection is often the only complete inventory. Original invoices are gone. What remains is the building as it stands, plus whatever drawings and appraisals the buyer received.
What inspection does not replace
A thorough walk-through does not make an item personal property. The regulation and the facts still have to line up. AmeriSouth shows that a large inventory of photographed apartment items can still stay with the building. Photographs prove what was there. They do not, by themselves, prove the class.
Inspection also does not replace reconciliation. Quantities have to price back to basis. Photographs of carpet do not create a carpet cost larger than the project can support. A quality file has both: a dated visit that records attachment and function, and a cost schedule that adds back to depreciable basis after land is removed.
Sources
- 1IRS Publication 5653 — Cost Segregation Audit Techniques Guide (rev. 2-2025)(opens in a new tab)
Written for IRS examiners. The guide states it is not an official pronouncement of law and cannot be cited as authority. It predates the July 2025 law.
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