SourceCorp: Cost Segregation Studies, R&D Tax Credits, LIFO Accounting Since 1983.

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Corporate Headquarters
6000 Western Place, Ste 800
Fort Worth, TX 76107
817.732.5494

Regional Business Development Contacts:

Texas Gulf Coast Region:
Candace Willingham

Midwest Region:
Diane Smith

Northeast Region:
Jennifer Weston

Southeast Region:
David DeGrand

South Central Region:
Jennifer Chin

Pacific Northwest Region:
Laura Collins

Upper Midwest Region:
Al Schmitt

9 out of 10 cities anticipate requiring in the next year that new city buildings be energy efficient, healthy and environmentally sustainable. Your clients may be eligible for a tax deduction of up to $1.80 per square foot for improving the energy efficiency of their existing commercial buildings or if they design high efficiency into new buildings. The Energy Policy Act of 2005 includes a tax deduction for investments in “energy efficient commercial building property” designed to significantly reduce the heating, cooling, water heating, and interior lighting energy cost of new or existing commercial buildings.

What is the Green Building 179D Tax Deduction?
The Energy Policy Act of 2005 added section 179D to the Internal Revenue Code. Section 179D permits a deduction for the costs of installing certain energy efficient building systems in commercial buildings.

To claim the deduction, a taxpayer must have a qualified firm perform a field inspection of the building. They then must use qualified software from the Treasury Department’s list of certified software to calculate the energy savings. Finally, a qualified individual must certify the results. SourceCorp is qualified and certified Green Building study experts.

Overview: The Problem

The U.S. holds less than 5% of the world’s population but produces nearly 25% of global carbon emissions.¹
National Climatic Data Center Reports 2006:
2.2 degrees warmer than average
.07 degrees warmer than 1998
6th warmest year on record

It’s the Buildings…

U.S. building sector building design, construction, materials and operation consume more energy than any other part of the economy:
9.8% of carbons worldwide²
Same as entire economies of Japan, France, and the United Kingdom²
300 billion square feet of buildings in the US are the single largest contributor to global warming in the country²
48% of all energy consumption and greenhouse gas emissions (GHG) in the US annually is from buildings²
76% of all power plant generated electricity is used to operate buildings globally²

Who Uses the Power?

76% of electrical power consumed by buildings²
23% of electrical power consumed by industry²
1% of electrical power consumed by transportation²

Buildings in the U.S. Use:

70% electricity consumption³
65% waste output³
30% greenhouse gas emissions³
12% water use³

Average Savings of Green Buildings:

50-90% decrease in waste cost savings⁴
30-50% decrease in water use savings⁴
35% decrease in carbon savings⁴
30% decrease in energy savings⁴
Tax deduction of up to $1.80/sf for improving the energy efficiency of your existing commercial buildings or designing high efficiency into new buildings⁵

Economic Value & Cost:

78% of property managers believe sustainable buildings can command 10% higher rents⁶
Massachusetts study – 1.5 to 2.5% cost premium returned 10 to 20 times the benefit⁶
87% of business would prefer an efficient building to an iconic one⁷

Improved Bottom Line:

30-70% energy savings³
8-9% average verified performance operating cost reductions³
2-16% enhanced productivity in office spaces³
7.5% average increased value³
Reduced liability and improved risk management³

Why Cities Are Adopting LEED:

Long term operating cost savings
To facilitate positive results for the environment, occupant health, and financial return
LEED allows a way to measure and compare “green” facilities
Prepared to pay initial higher cost in exchange for higher return on building maintenance and operation costs
To practice leadership by example

Example Dallas LEED Buildings: Jack Evans Police Headquarters⁸

6-story, 350,000 s.f. structure
Design focused on reducing heat gain through passive design and energy load reduction strategies
Higher wall insulation values
Reflective roof material
Occupancy sensors in spaces
Expected to use 40% less energy and generate $246,000 in annual savings
Project developed on a Brownfield site
100% of building irrigation is from collected and stored rainwater
Reduced use of potable water by 50%
Diverted 80% of the construction waste from the landfill
Over 25% of the building materials manufactured regionally
Implemented Indoor Air Quality plan during construction
LEED Silver certified 12/2005

Green Building Programs:⁹

9 out of 10 cities anticipated requiring in the next year that new city buildings be energy efficient, healthy an environmentally sustainable
87% of cities require, or anticipate requiring in the next year, that city government buildings undergoing major rehabilitation be energy efficient, healthy and environmentally sustainable
56% have a policy in place
32% anticipate they will adopt such a policy in the next year
Proactive cities include: Dallas, Portland, Washington, DC, San Francisco, Minneapolis, San Antonio, Austin, and Frisco

Local Government Activity:⁹

2 in 3 cities have changed, or are in the process of changing, their residential and commercial building codes and/or ordinances to encourage that buildings undergoing major rehabilitation be energy efficient, healthy, and environmentally sustainable.
78% of cities are undertaking efforts to encourage the private sector to construct buildings that are energy efficient, healthy and use sustainable building techniques
88% of cities are undertaking efforts to educate the public about the importance of making buildings energy efficient, healthy, and environmentally sustainable
3 in 4 cities have changed, or are in the process of changing, their residential and commercial building codes and/or ordinances to encourage construction of new buildings that are energy efficient, healthy, and environmentally sustainable

Green Building 179D Energy Efficiency Tax Deductions:
You may be eligible for a tax deduction of up to $1.80 per square foot for improving the energy efficiency of your existing commercial buildings or designing high efficiency into new buildings. The Energy Policy Act of 2005 includes a tax deduction for investments in “energy efficient commercial building property” designed to significantly reduce the heating, cooling, water heating, and interior lighting energy cost of new or existing commercial buildings.

Because the Code section 179D deduction applies to new buildings that meet certain energy savings targets and requires the involvement of licensed engineers or contractors, you may not have known where to turn to for help with this new deduction. You can turn to the professional staff at SourceCorp Professional Services for help in determining whether your clients qualify for this new deduction.

The SourceCorp Section 179D Energy Efficiency Service team is comprised of full-time, highly experienced and uniquely qualified 179D professionals. We can help maximize your deductions and limit your exposure.

SourceCorp Green Building Study Process/Overview:
After preliminarily reviewing the specifications, we determine whether the building would qualify in whole or in part. After obtaining any necessary licenses in the building’s local jurisdiction, a professional engineer would perform the energy modeling and analysis and schedule a site visit. The energy modeling may not occur until after the site visit depending on the level of detail available in the plans. Detail is frequently lacking in situations where the taxpayer acted as its own general contractor. Regardless, during the site visit, our engineer would follow the NREL standard guides and checklists to verify that the property meets the energy savings targets and gather any additional information not included in the plans.

We then finalize the section 179D study and provide the building owner with an overview of the energy saving features.

After we provide the certification of the qualifying energy efficient property, our specialized cost segregation team become involved in the process. The certification process for Code section 179D only determines whether the deduction is available. The certification process does not involve determining the cost of the qualifying energy efficient property. Our cost segregation team will:

Use industry-standard cost estimation techniques to determine the cost of the qualifying energy efficient property;
Integrate the section 179D study findings into the cost segregation report.

Our cost segregation team determines the cost basis of the qualifying property and determines the applicable cap on the deduction.

Where possible, the engineer that performs the site visit will also be able to perform the cost segregation analysis of the building. In some situations, the engineer may work in tandem with another cost segregation consultant on larger or unusual properties. Alternatively, your client’s in-house contractor or professional engineer may be able to perform the site visit and then we could send only a cost segregation consultant for a site visit. After finalizing the cost segregation report, we will ship a hardcopy of our comprehensive cost segregation report and the section 179D study to your client.

Audit Support
Under our standard agreement, we provide 40 hours of audit support. We anticipate that the section 179D study will involve a minimal level of audit support because we can provide the agent with the study and discuss any questions the agent might have. As necessary, we would file a Form 8821 to be able to discuss the study with the agent. If the combined section 179D study and cost segregation report require additional audit support, we can file a Form 2848 and work with you on providing the best audit defense for your client.

About SourceCorp:
Celebrating their 25th year in business, SourceCorp Professional Services is the leading provider of specialized tax services in North America. Headquartered in Fort Worth, Texas, SourceCorp empowers accounting firms by providing LIFO Accounting, R&D Tax Credit Studies, Cost Segregation Studies, and Green Building 179D Energy Efficiency Studies. With a specialized team of more than 50 professionals and with offices located throughout the country, accounting firms realize unparalleled experience, services, and trust. SourceCorp serves many of the nation’s most prominent CPA firms, Associations, and Fortune 1000 companies. For more information, please visit SourceCorp at: http://www.SourceCorpTax.com.

Contact information:
SourceCorp Professional Services
6000 Western Place, Ste 800
Fort Worth, Texas USA 76107
p 817.732.5494
f 817.731.2343
www.SourceCorpTax.com

Sources:
1 Scientific American September 2006
2 American Institute of Architects
3 U.S. Green Building Council
4 Capital E
5 Energy Policy Act of 2005 section 179D Internal Revenue Code
6 Captial E Greening America’s Schools October 2006
7 Gensler 2006
8 City of Dallas Green Initiative
9 Survey report by the U.S. Conference of Mayors