Raising Millions in Donations the Peter Burns Way: An Introduction to Cost Segregation for Charitable Fundraising

Tired of begging for donations? Consider offering cost segregation studies to potential donors who own property and share in the resulting cash windfalls.

Anyone who has worked in an upper management role in a charitable organization has likely found themselves in the position of begging for money in one way or another. You might have chosen to stand in the cold, ringing a bell during the holiday season and hoping for the generosity of passing pedestrians. Alternatively, you might have opted instead to write fundraising letters detailing why donations are essential for the fulfillment of the charity’s noble mission. Whatever the case, it is hardly a comforting feeling to be completely at the mercy of your donation base, with little to offer but a heartwarming story.

What if you can flip that script upside down, corralling big-ticket donors by providing real value to them instead of passively conveying a heartfelt message and hoping for the best? By guiding wealthy patrons towards an easy way to enjoy massive tax savings on real estate properties and in turn reap a good deal of the resulting loose cash?

If that sounds interesting to you, the answer may lie in the little-known accounting process called cost segregation.

To answer the first question that likely comes to your mind; yes, cost segregation is perfectly legal and IRS-compliant. The IRS has even published guidelines for a proper cost segregation study on their website. Even better, it is a painlessly easy process for the property owner, especially considering the potential windfalls that it can bring.

While the modern application of cost segregation can be traced most directly to two landmark 1997 court cases, California-based entrepreneur Peter J. Burns III was the first to tie cost segregation studies to other business ventures back in 2005 while serving as an adjunct faculty member at the Barrett Honors College at Arizona State University. Partnering with a student enrolled in his entrepreneurship-centric “Ready, Fire, Aim” course, Burns created a marketing company for cost segregation studies and managed to generate over $180,000 of profit in only three months. Other opportunities beckoned and cost segregation was put on the back burner for the time being. Never forgetting that early taste of success, however, the cost segregation never strayed far from Burns’ active entrepreneurial imagination.

As is his wont, Burns soon devised a number of unique applications for the strategy of cost segregation and filed several provisional patent pendings accordingly, including for charitable fundraising. He also found a novel way to join cost segregation with his venture into selling unused rental time in luxury villas to create HL Cost Seg, the cost segregation marketing company Burns kicked off in 2005 while teaching at ASU.

Burns’ return to championing cost segregation comes at the same time as his homecoming of sorts to academia, where he has been invited to serve as a board member for an entrepreneurial center at a major west coast university. Setting his sights ever higher, Burns wants help every 501c-3 charity use the technique of cost segregation to raise virtually free funds from donors who may own eligible property.

A cost segregation study identifies aspects of property that can be placed on accelerated depreciation life cycles, potentially resulting in huge tax savings for eligible property owners.

So what is cost segregation and how can it be useful in bringing untapped funding potential to your charity?

Put simply, cost segregation is a process through which certified analysts appraise a property and adjust the scheduled depreciation life cycle of non-structural elements like carpets and wall coverings. Since the default tax life on a commercial building is 39 years under standard straight-line depreciation, cost segregation professionals seek to identify the myriad pieces of a personal property that can instead be placed on 5, 7, or 15-year depreciation terms.

Such acceleration of depreciation often leads to huge tax savings in the early years of a property’s life and allows property owners to retroactively catch up on any savings that result from the depreciation adjustment. Peter Burns has commissioned hundreds of cost segregation studies himself and has observed the rule of thumb that around six percent of the value of a building is given back immediately in tax benefits. This can often yield more, however, as in the case of an $8 million rental villa that returned $625,000 to the owner following a cost segregation study performed by Cost Segregation Initiatives.

As mentioned before, the entire process is guided by IRS methodology, meaning any CPA should be able to take the results of the cost segregation study and safely use it for tax filing purposes. In fact, Cost segregation should only be performed by experts who are part of the American Society of Cost Segregation Professionals (ASCSP). The ASCSP is the only body in the US that certifies the qualifications of cost segregation professionals along with a fully-fledged Code of Ethics.

While the ASCSP provides a directory of cost segregation professionals who are members of the organization, as few as five percent of the roughly 91 million eligible buildings have had a cost segregation study performed. By Peter Burns’ estimates, that means that there is as much as $500 billion of potential funding on the table for charities who offer to commission a cost segregation study for donors in return for a sizable portion of the resulting tax savings. This provides wealthy donors with property a means to generate funds for the charity of their choice at no out-of-pocket cost to them.

If this sounds like a possible solution to your charity’s funding needs, read more about cost segregation online and consider reaching out to Peter J. Burns III directly for advice on how to best match prospective donors with qualified cost segregation professionals. He’s the one who came up with this whole idea, after all.