TAM 7941002 — Engineering-Based Study / Documentation Standard

Where this comes from

Technical advice memoranda are internal IRS documents. Field agents request them when they need guidance on a specific factual situation. They are not published rulings and they do not bind courts. But they reflect the IRS's thinking, and this one became foundational.

TAM 7941002 was issued June 25, 1979. At that time, cost segregation as a practice was still developing. The memo addressed whether a third-party cost analysis could be used to allocate building costs to separate components for depreciation purposes.

What it establishes

The memo said three things that still matter today.

First, using a third-party cost analysis to allocate costs among building components is a proper method. You do not have to rely on the original contractor's invoice alone. Bringing in an independent engineer to analyze the costs is acceptable.

Second, the analysis must be done by qualified personnel. The memo was specific: qualified means people who are competent in building design, construction methods, cost estimating, and auditing. Not just anyone with a report template.

Third, deciding whether a component is personal property is a factual question. It cannot be resolved by applying a general rule or making assumptions. It must be answered by looking at the actual property and supporting the conclusion with documented evidence.

How it shows up in a study

The IRS Audit Techniques Guide, Pub. 5653, cites TAM 7941002 alongside Rev. Rul. 73-410 when it describes the documentation-substantiation standard for cost segregation studies. The connection runs from 1979 straight into the current examiner's guide.

When an engineer walks through a building to prepare a study, the engineer is meeting this standard. When the report documents each component with factual analysis rather than assumptions, it is satisfying the same requirements the memo set out over 45 years ago.

What it does not mean

TAM 7941002 is non-precedential. It is not a published ruling and does not bind courts or the IRS in other cases. A taxpayer cannot point to it alone to win a dispute.

The memo also sets a floor, not a ceiling. Modern studies are expected to meet the full 13-element quality checklist in ATG Chapter 4, which goes further than the basic standards the 1979 memo described. Meeting the TAM standard is necessary but not sufficient for a fully defensible study today.