I’ve covered the basics of how SAP can track and manage asset values to support US tax valuations. Pretty much all of the basics have been covered at this point so I’ll have to start diving into some niche areas and requirements. For this particular one, we’ll talk about the tax forms themselves.
Handling US Tax Depreciation in SAP (Part 1): The Basics
Handling US Tax Depreciation in SAP (Part 2): Separate Books
Handling US Tax Depreciation in SAP (Part 3): Basis Adjustments
Handling US Tax Depreciation in SAP (Part 4): Prior Year Adjustments
Handling US Tax Depreciation in SAP (Part 5): Mid-Period and Mid-Quarter Convention
Handling US Tax Depreciation in SAP (Part 6): IRS Passenger Vehicles
Handling US Tax Depreciation in SAP (Part 7): Tax Forms 4562 & 4797
There is a fairly lengthy list of US tax forms that companies have to file. Some of them are administrative in nature or merely just disclose information rather than require specific asset values.
For those that do require asset values, can SAP produce them?
Yes… and no.
No, because SAP doesn’t get into the weeds of being able to produce (pixel-by-pixel) every tax form for all of the 10,000+ (or more?) tax jurisdictions around the world. Even if they were to limit it to the top 1,000 that would still require some fulltime staff on their part to handle changes in the forms that are made during the year. That’s not their job and most software companies follow the same approach.
However, if a customer really wanted it done, it is certainly possible. It’s possible in SAPscript, Smart Forms or other PDF based SAP (and non-SAP) solutions to produce the form within SAPGUI based on the tax values in the FI-AA subledger. These applications are capable of pixel-by-pixel output that contains data from the SAP system. It would be possible to specify a selection screen with the usual asset values (Company Code, Depreciation Area, Report Date, etc.) and then have the output be the actual IRS form rendered within SAPGUI and with the tax values from the subledger.
So, yes, it’s possible to do it but have we ever worked with a customer to deliver this. No. I’ve never had a customer pursue this because populating a lot of the IRS forms aren’t that hard once I show them how to properly summarize some of the information using the standard asset reports. So why burn the money and implementation time on an IRS form that will change each year anyways?
So, What’s the Best Approach?
Rather than spend the development budget going down the road of SAP Smart Forms (or whatever PDF solution they replace it with one day), it makes sense to just use the asset reports. First, let’s cover what these two forms are meant to cover and how you can get the information out of SAP.
IRS Form 4562
IRS form 4562 is one of the main form used for the IRS regarding fixed assets. Companies have to file it in order to show how much depreciation (MACRS) and amortization they took. The form is just a summary of the asset cost and depreciation values and broken out by different property classifications. Specifically, the IRS is only looking at this by the useful life if the asset so it’s possible to combine values across multiple asset classes.
In the image below, I’ve highlighted the useful life section of the form and the values that have to be provided. The IRS also provides detailed instructions on how to populate the form but I won’t get into that. For SAP, all we have to do is report on the asset values for the appropriate fiscal year and them summarize them per asset class.
How do you do this in SAP? That’s pretty easy. Just run the Asset Balances report with the right depreciation area and report date, then configure a sort version that includes useful life. I’d recommend one that has Company Code, Useful Life, then Asset Class. Execute the report in group mode (you don’t need the individual assets in this case) and you can easily fill out the form.
In S/4HANA, I could imagine that the SAP Analytics Cloud has a way to build a custom report on the fixed asset ledger that would do this as well. Either way, it’s just a simple summation of the asset values by their life.
To be clear, there is more that goes on this form. Section 179 deducations which are used to write-off large portions of an asset (up to $1M) are included in it as are the US Special Depreciation values. Amortization which is slightly different than depreciation is also included. However, it’s the annual MACRS depreciation covered above that is broken out by useful life which can easily be handled via a simple asset report.
IRS Form 4797
IRS form 4797 is meant to disclose details around asset sales specifically the gains from those sales. It requires the following:
- Property description
- Acquisition date
- Sale date
- Sale price
- Depreciation and cost basis
- Calculated gain/loss
In SAP, there is a standard report “Analysis of Retirement Revenue” S_ALR_87012066 that gives these details for any retirements in the system. It displays the ordinary versus capital gain (and loss), basis and revenue. It’s an old report but perhaps we will get a dedicated Fiori app for it at some point in S/4HANA.