IRS Audits - Part 4 Examining Process

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IRS Audits

Chapter 10. Examination of Returns

Section 8. Report Writing (Cont. 1)

4.10.8  Report Writing (Cont. 1)

4.10.8.9 
Deficiency Dividends

4.10.8.9.4  (06-10-2005)
United States Tax Court Cases: Area Compliance Responsibilities

  1. In cases where the liability for personal holding company tax has been established by a decision of the United States Tax Court, Appeals will assess the gross deficiency. After assessment has been made by the campus, the administrative file will be forwarded to the Area Compliance Examination. The taxpayer will be notified by the Area Director with respect to the filing of a claim, Form 976, to obtain the benefits provided in IRC § 547. The case will be held in suspense (Technical Services) until a Form 976 is filed or until the expiration of the 120 day period for filing Form 976, whichever is earlier.

  2. If a Form 976 is not timely filed, the case will be transferred for collection action, consistent with the Court’s decision.

  3. If a Form 976 is timely filed, the case will be assigned to an examiner.

    1. Upon receipt of a closing agreement from the taxpayer, Form 866 will be prepared and forwarded to Technical Services (TS) for processing. The date of the closing agreement on Form 866 will be the date upon which the closing agreement is signed by the Area Director. The closing agreement, together with the case file, will be transmitted to the Area Director for approval.

    2. Once approved, Technical Services (TS) will determine any need for follow-up action and transmit a copy of the closing agreement to the taxpayer.

     

4.10.8.9.5  (06-10-2005)
Closing Procedures For All Dividend Deficiency Cases

  1. For all cases where a deficiency dividend deduction is allowed, the examiner will prepare Form 3189, Deficiency Dividend Case Transmittal. See Exhibit 4.10.8-9.

    1. The form will include a computation of the tax liability before the reduction for payment of deficiency dividends. This is necessary for computing the interest amount.

    2. The original Form 3189 will be placed on top (outside) of the case file.

    3. A duplicate Form 3189 will be attached to every corporation return for which a deficiency dividend was paid.

     

  2. If a return for which deficiency dividends were paid has not yet been filed, then the examiner should prepare Form 5346, Examination Information Report and attach the duplicate Form 3189 so that it can be associated upon filing.

  3. Form 5346, Examination Information Report, should be completed to report dividends paid to shareholders in the current year.

  4. Form 3198 should identify the case as a restricted interest and claim for deficiency dividends paid case.

4.10.8.10  (06-10-2005)
Unagreed Case Procedures: Preliminary (30-Day) Letters

  1. Preliminary (30-Day) Letters are used to furnish taxpayers a copy of the examination report and advise them of their appeals rights when they do not agree with the results of an examination. Refer to Treas. Reg. § 601.105(d) - Thirty-day letters and protests for legal authority and additional explanation. Generally, the 30-Day letters are:

    1. Office examination - Letter 915 (issued with first report)

    2. Field examination - Letter 950

     

    Note:

    Caution: The Treasury has not yet amended Reg. § 601.105 to reflect changes made by the "Community Renewal Tax Relief Act of 2000," P.L. 106–554 for § 601.105 Examination of returns and claims for refund, credits or abatement; determination of correct tax liability.

     

  2. Preliminary (30-Day) Letter procedures are applicable to income, estate, gift, excise, and employment tax cases.

  3. Per Appeals IRM 8.2.1.3.1, 180 days must be remaining on the statute when they receive the case. The group should consider a minimum of 30-60 days for processing in Centralized Case Processing in consideration of the statute requirements.

  4. Managerial involvement is required in unagreed cases. A field group preliminary (30-day) letter generally should not be issued to the taxpayer unless the manager has contacted the taxpayer and/or representative to attempt to resolve the tax controversies and reach an agreement. If the case is a no-show/no-response case, the manager will verify that an address confirmation was done. These efforts will be documented in the case file. Form 9984, Examining Officer Activity Record, or Form 10118, Supervisory Conference - Unagreed Cases, or Form 10307, Unagreed Office Audit Cases, may be used for this purpose.

  5. Letters are issued in change cases and in no-change cases involving the disallowance in full of claims for refund. Exceptions are fraud cases involving criminal prosecution and frivolous filers/nonfilers and Appeals does not have jurisdiction for these cases.

  6. If an examination of a return results in a deficiency or overassessment but, because of net operating loss carryback, no deficiency or overassessment results, a computation of restricted interest may be required. If the taxpayer disagrees with the examination results, they will be afforded the same opportunity to request an Appeals hearing, as if a deficiency/overassessment were involved.

  7. IRC § 6651(f), Fraudulent Failure to File (FFTF) Cases — The portion of a FFTF penalty attributable to the amount of tax shown on a return is assessable immediately and is not subject to deficiency procedures. To ensure that the facts of a particular case support fraud, and because the assessment of a FFTF penalty attributable to the amount shown on a return will not be reviewed by the Tax Court, all 30-day letters proposing a FFTF penalty must be reviewed and approved by Area Counsel prior to issuance. Furthermore, the period of limitations on assessment of such portion would not be suspended by the issuance of a notice for the other portion.

4.10.8.10.1  (06-10-2005)
Reports

  1. Report forms used to present the audit findings for an unagreed case are similar to those used for agreed cases and the instructions for completing agreed case reports generally apply. However, these unagreed report forms do not include a signature line for the taxpayer’s consent to assessment and collection. Unagreed cases are "excepted" agreed cases. See IRM 4.10.8.4.2 above for instructions for preparing waivers (Form 870 - Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment). Also, there is no statement regarding the Area Director’s acceptance of the report.

  2. The following report forms are used for unagreed cases.

    Note:

    Use of Form 4549-A is optional for Office Examination in lieu of Form 4549.

     

    Type of Taxpayer Report Form Agreement Form (Waiver)
    Individual (1040) 4549–A 870
    Corporations (1120) 4549–A 870
    Non-TEFRA Partnerships (1065) 4605–A
    and
    886–S    		 875
    Non-TEFRA S-Corporations 4605–A,
    886–X    		 870 (entity tax)
    875
    Fiduciary 4605–A
    886–W    		 875
    Domestic International Sales Corporations 4605–A
    886–Y    		 870

     

4.10.8.10.2  (06-10-2005)
Explanation of Items

  1. A copy of the examiner’s lead sheet relating to each adjusted issue will be attached to the report form to explain the adjusted items. A separate lead sheet should be used for each adjustment. If the adjustment is applicable to more than one year, the adjustments should be shown on one combined lead sheet.

  2. The following format should be used for Field Examination cases:

    1. Title — Each lead sheet should be numbered and titled to correspond with the adjustment on the audit report. See IRM 4.10.9.3.5. The lead sheet should reflect the amount per return, the amount per audit, and the resulting adjustment.

    2. Facts — Each lead sheet will include a statement of the facts upon which the adjustment is based. The statement should be in narrative form. The facts must be relevant to the issue and should be stated accurately and objectively. Facts favorable to both the Service’s and taxpayer’s position must be included.

    3. Applicable Law — The applicable authority should be correctly cited and explained (if necessary). Rulings, opinions, and decisions relied upon are to be clearly stated and identified in the explanation. Citations are not required when the adjustment is predicated entirely on facts, or when they serve no useful purpose. However, reports should be informative for the taxpayer.

    4. Taxpayer’s Position — The taxpayer’s position should be stated (in narrative form) if known. The legal authority, if any, that the taxpayer is using as the basis of their argument should also be cited. If the taxpayer has provided a written position statement include the entire statement in this section or summarize the statement and include the entire document in the report as an exhibit.

    5. Argument — Relate the facts, as previously stated, to the cited authority through a narrative discussion to support the Service’s position. Also include the Service’s refutation of the taxpayer’s position. The examiner’s argument will be included in the new law section of the applicable issue lead sheet. See IRM 4.10.9.3.5.

    6. Conclusion — Briefly state a conclusion of the Service’s position.

     

  3. The copy of each issue lead sheet that is used as an attachment to the examination report may be modified to remove extraneous information (e.g., work paper cross-referencing, audit steps that were not employed during the audit, etc.) that would be of no use to the taxpayer or representative.

4.10.8.10.3  (06-10-2005)
Alternative Positions

  1. An alternative position for an issue in an unagreed case is a secondary position that the Service may ultimately rely on if the primary position cannot be upheld. An alternative position is recommended as Appeals generally will not raise new issues. Therefore, the examiner must outline all alternative positions that may be applicable if the primary position is not sustained.

  2. The primary and secondary positions will usually address a different set of law and arguments. Due to this, the tax computation for the alternative position may be different from the primary position.

  3. An alternative position should be used for tax law that supports two totally separate positions. For example, when an adjustment is proposed to disallow business expenses due to IRC § 183, hobby loss provisions; the IRC § 162 adjustment should be written up as an alternative position to IRC § 183. The primary position should be the larger of the liabilities when two positions are considered.

  4. An alternative position is notrequired for an adjustment that is supported by multiple code sections of tax law for one position. For example, to support a disallowance of business expenses, IRC § 162(a), ordinary and necessary business expenses, and IRC § 6001, lack of substantiation, may be incorporated into one explanation of adjustment.

4.10.8.10.3.1  (06-10-2005)
Reports for Alternative Positions

  1. The alternative position must be discussed with the taxpayer, or his/her authorized representative prior to issuing the examination report. The alternative position report must be included in the report presented to the taxpayer.

  2. The facts, law, taxpayer’s position, and conclusions for the alternative position on an issue will be presented on a separate lead sheet from the primary position.

  3. If the tax computation changes due to the alternative position, a separate Form 4549-A, Income Tax Examination Changes, from the primary position will be prepared in addition to a separate lead sheet.

  4. The top of each of these report forms for the alternative position will be marked "ALTERNATIVE ISSUES."

  5. The alternative position report will be placed behind the report containing the primary position.

4.10.8.10.4  (06-10-2005)
Form Letters

  1. Generally, Preliminary (30-Day) Letters allow the taxpayer 30 days to request Appeals consideration of their case. The following form letters, specific to the type of case, are used for this purpose:

    1. Letter 950 (DO) — for straight deficiency, straight overassessment, or mixed deficiency and overassessment field examination cases.

    2. Letter 915 (DO) — for straight deficiency, straight overassessment, or mixed deficiency and overassessment office examination cases.

    3. Letter 569 (DO) — for claim disallowance cases.

    4. Letter 953 (DO) — for reconsideration of disallowed claims when no modification of prior determination is warranted.

    5. Letter 962 (DO) — for straight deficiency, straight overassessment, or mixed deficiency and overassessment fiduciary cases.

    6. Letter 921 (DO) — for flow-through entities (partnerships, fiduciaries, S-corporations, etc.)

    7. Restricted Interest Cases — a special letter, patterned after the form letters listed in a–f, should be prepared to address the restricted interest issue, rather than a deficiency or overassessment of tax. No form letter is available due to limited need.

     

4.10.8.10.5  (06-10-2005)
Report Transmittal: Form 4665

  1. This form is used to summarize unagreed issues and present information of a confidential nature for Appeals. The information should supplement, not duplicate or replace, information in the case file.

  2. Confidential information included on the report transmittal includes:

    1. Statements and facts involving allegations of fraud;

    2. Remarks regarding the integrity, motives, or abilities of the taxpayer;

    3. Ability to pay;

    4. Potentially dangerous taxpayers;

    5. Procrastination by the taxpayer or representative;

    6. Other confidential information which should not be made available to the taxpayer.

     

  3. Items which need safeguarding from disclosure with Document 6441 should not be included or referenced on the report transmittal. Examples include fraud referrals and identification of informants.

4.10.8.10.6  (06-10-2005)
Contents of Preliminary (30-Day) Letters

  1. Preliminary (30-Day) Letters will include the following documents:

    1. Appropriate form letter,

    2. Examination report and waiver, and

    3. Publication 3498, The Examination Process (or Publications 1, 5, and 594).
      Publication 3498 must always be enclosed with the preliminary (30-day letter) regardless if it was provided with a previous report or letter.

     

4.10.8.10.7  (06-10-2005)
Mailing Preliminary (30-Day) Letters

  1. Preliminary letters will be sent by ordinary mail unless it is considered necessary to document the mailing and delivery. In such cases, certified or registered mail should be used and a return receipt requested.

  2. The authority to sign and issue the letters is delegated to group managers.

  3. In the case of a joint return, a complete original Preliminary Letters will be sent to each spouse.

  4. A copy of the Preliminary Letter, with all enclosures, should be sent to the taxpayer’s representative if authorized to receive such communication.

  5. A copy of the Preliminary Letter will be maintained in the case file.

  6. After mailing the Preliminary Letter, the case will be held in the group’s suspense files. Managers will ensure adequate controls for cases in 30-Day status.

4.10.8.10.8  (06-10-2005)
Extension of Time to Respond

  1. In general, Treas. Reg. § 601.105(d)1 does not provide for any extension of time to reply to Preliminary (30-Day) Letters. However, as a matter of practice, extensions may be granted under reasonable circumstances.

  2. Reasonable circumstances include:

    1. the taxpayer retains a representative and demonstrates a need for more time to prepare a meaningful protest.

    2. the taxpayer retains a new representative.

    3. sickness or injury of the taxpayer or representative.

    4. issues are complex and require extensive research.

     

  3. Requests for extensions should be in writing and should state the reason(s) why additional time is needed. Since many requests are made by telephone, the extension may be granted verbally and confirmed in writing upon receipt of the written request.

  4. Extensions should not be granted if the statute of limitations will expire within 240 days and the granting of an extension will not leave sufficient time to process the case. Under such circumstances an extension to respond to a Preliminary Letter will be contingent upon securing an extension of the statute of limitations.

  5. Extensions are granted by the group manager or a designated management official. The taxpayer should be notified in writing of the extension and the specific extended response date. Letter 686 will be used for this purpose. Extensions are normally granted for no more than 30 days unless a specific reason supports additional time.

4.10.8.10.9  (06-10-2005)
Response to Preliminary (30-Day) Letters

  1. If a signed agreement form is received in response to the Preliminary Letter, the case will be closed from the group within 10 days from the date the report is received using agreed case closing procedures.

  2. The taxpayer may respond by requesting an appeal. The appeals request procedure below applies to Field Assistance as well as to Field/Office Exam.

  3. Appeal Requests — Field/Office Examinations

    1. For any case where the total amount of proposed additional tax, additions to tax and penalties, proposed overassessment, or claimed refund, credit, or abatement for any tax period, does not exceed $25,000, a request for an Appeal is made using small case procedures. These procedures require a written request asking for Appeals consideration, indicating the changes the taxpayer does not agree with and any reasons for disagreement.

    2. A case with a deficiency exceeding $25,000 requires a formal written protest.

     

  4. If the taxpayer submits a formal written protest it will be reviewed at the group level, as designated by management, within seven days of receipt to determine whether:

    1. The protest is adequate;

    2. The case requires further development by the examiner;

    3. The examiner’s report should be modified;

    4. The taxpayer’s written protest includes the required documents.

     

  5. A taxpayer’s formal written protest must include the following:

    1. A statement that the taxpayer wants to appeal the examiner’s findings to the Appeals Office;

    2. The taxpayer’s name and address and daytime telephone number;

    3. A copy of the letter showing the proposed changes and findings being protested or the date and symbols from the letter;

    4. The tax periods or years involved;

    5. An itemized schedule of the adjustments with which the taxpayer does not agree;

    6. A statement of facts supporting the taxpayer’s position on any contested factual issue;

    7. A statement outlining the law or other authority, if any, upon which the taxpayer is relying;

    8. A declaration of truth for item f above under penalties of perjury. This may be done by adding the following signed declaration to the protest document:
      "Under penalties of perjury, I declare that I have examined the statement of facts stated in this protest, including any accompanying documents and, to the best of my knowledge and belief, they are true, correct, and complete."

     

  6. If the taxpayer’s representative submits the protest for the taxpayer, the representative may include a substitute for the taxpayer’s declaration described in paragraph (5)h above. The declaration will state:

    1. that the representative prepared the protest and accompanying documents; and

    2. whether the representative knows personally that the facts contained in the protest and accompanying documents are true and correct.

     

  7. The protest should be returned to the taxpayer if incomplete and additional time granted to perfect the document.

  8. The case should be returned to the examiner for further development if the protest contains information warranting consideration. Cases returned for additional development should be considered priority work and given expedited consideration. If the examiner or group manager feel that there is something in the protest that does not change the determination, but requires further comment or explanation and is not confidential in nature, a rebuttal can be prepared and included in the case file before it is sent to Appeals. If a rebuttal is prepared, a copy should also be provided to the taxpayer.

  9. The group manager should attempt to discuss the disputed issues with the taxpayer (representative) in an attempt to resolve the issues, obtain agreement, and limit taxpayer burden. If agreement cannot be reached, the case will be forwarded to Appeals.

  10. If the taxpayer verbally requests a transfer of jurisdiction for the Appeal, and the written protest is complete, the case file will be sent promptly to the local Appeals office serving the transferor area. This procedure applies even if the taxpayer has requested a hearing in an Appeals office other than the one servicing the transferor area.

  11. The fact that a Statutory Notice of Deficiency has been issued to the taxpayer does not preclude transfer of protested cases to Appeals for:

    1. Other taxable periods of the same taxpayer;

    2. Other types of tax for the same taxable periods for the same taxpayer; or

    3. An offer in compromise covering the same type of tax and the same taxable periods of the taxpayer.

     

  12. Appeals may also request jurisdiction of cases related to the cases described in 11 above.

  13. A case can be transferred to Appeals with a copy of the taxpayer’s return if:

    1. A transcript of account is attached to the duplicate return, and

    2. The case does not involve fraud, a jeopardy assessment, a joint committee case, or a Statutory Notice of Deficiency issued as a basis for closing.

     

  14. Requests from Appeals for additional information or further verification of facts in a protested case will be completed expeditiously.

4.10.8.10.10  (06-10-2005)
Follow-Up to Preliminary (30-Day) Letters

  1. FIELD EXAMINATION — If the taxpayer has not filed a protest within the time allowed, but indicated their intent to do so, Letter 923 will be sent to the taxpayer to allow an additional 15 days to file a protest. Letter 923 should be issued no later than seven calendar days after expiration of the original Preliminary Letter.

  2. OFFICE EXAMINATION/FIELD ASSISTANCE — If the taxpayer does not respond to the preliminary letter, Letter 2304(DO) must be sent as a follow-up. Letter 2304 should be sent 15 days after Letter 915 (DO).

  3. If the Preliminary Letter is returned as undeliverable to the address on file, then an attempt will be made to obtain the correct address.

    1. If the taxpayer’s correct address is determined, the Preliminary Letter will be remailed to the new address. The period in which the taxpayer may reply starts with the date the letter was remailed.

    2. If the taxpayer’s correct address cannot be determined, then the case will be processed as outlined in IRM 4.10.8.10.11 below.

     

  4. If the Preliminary Letter proposes an overassessment or disallowance of a claim with no change in tax liability, no follow-up action should be taken. The case should be closed as outlined in IRM 4.10.8.10.11 below.

  5. If no response to a follow-up letter is received, the case will be processed as outlined in IRM 4.10.8.10.11 below.

4.10.8.10.11  (06-10-2005)
No Response to Preliminary (30-Day) Letter

  1. Cases will be closed from the group promptly within twenty days after the expiration of the time (including extensions) allowed to file a protest.

  2. DEFICIENCY CASES — A Statutory Notice of Deficiency will be issued when no response was received to the preliminary (30-day) letter, subject to the following conditions:

    1. if it appears reasonable that the taxpayer or authorized representative received the Preliminary (30-Day) Letter or, if not received, the Service exercised due diligence in determining the taxpayer’s last known address.

    2. the taxpayer is temporarily away and is not expected to return within a reasonable period of time, or has not returned after a reasonable extension has been granted.

    3. follow-up action was taken without success.

    4. the notification required by IRC § 534(b), cases involving alleged unreasonable accumulation of earning and profits, has been issued.

     

  3. Regardless of the conditions outlined in paragraph (2) above, a statutory notice of deficiency will be issued within the time fixed by law if the statute of limitations will expire within 150 days and the taxpayer will not execute a consent to extend the statute of limitations period.

  4. OVERASSESSMENT PROPOSED — If the taxpayer fails to reply to a preliminary letter advising of a proposed overassessment (adjustments that decrease the tax liability exceed the adjustments increasing the tax liability), the case will be closed out of the group to Centralized Case Processing for assessment of the overassessment.

  5. CLAIM DISALLOWANCE WITH NO-CHANGE IN TAX LIABILITY — If the taxpayer fails to respond to the preliminary letter advising them of the disallowance of the claim with no-change to the tax liability, a Notice of Claim Disallowance will be issued.

    1. If there is no change to the tax liability (neither a deficiency or overassessment), indicate on Form 3198, "Issue L-906, Notice of Claim Disallowance – Full, enclosed inside the case file."

    2. If the claim is disallowed in part with a resulting overassessment, indicate on Form 3198, "Issue L-905, Notice of Claim Disallowance – Partial, enclosed inside the case file."

    3. Both letters include several lines for the examiner to insert the reasons for disallowance. Complete the letter except for the date, include the reasons for disallowance, and place the letter inside the case file on the top.

     

  6. EMPLOYMENT TAX CASES — A Preliminary (30-Day) letter will be issued in employment tax cases to advise taxpayers of all unagreed proposed adjustments to their tax liabilities and of conclusions reached in no-change cases involving the disallowance in full of claims for refund.

  7. RESTRICTED INTEREST CASES — If the taxpayer fails to reply to the special letter within the time allowed, the tax liability will be adjusted as proposed in the examination report. Procedures in IRM 4.4 AIMS/Processing and other related sections will be followed to assess the restricted interest.

4.10.8.10.12  (06-10-2005)
Time Reporting for Preliminary (30-Day) Letters

  1. Time spent by examiners to prepare the unagreed report and accompanying explanatory lead sheets is charged to the case under Direct Examination Time (DET).

  2. Time spent by examiners on 30 day letter activities (including preparation of the 30-day cover letter, protest reviews, and follow-up letter) will be reported using nonexamination Activity Code 646. Preparation of the report (including RAR and explanatory lead sheets) is not reported under Activity Code 646. When 30 day activity begins, the case should be removed from the agent’s inventory and kept in the managers office.

  3. The case should be updated to Status Code 13 on AIMS when the Preliminary Letter is sent to the taxpayer from the group. If the Preliminary Letter is sent from Technical Services, the case will be updated to Status Code 22.

    1. AIMS Statute Table 4.1, at the group level, will include cases in Status Codes 9–18.

    2. AIMS Table 4.0, for Technical Services Staffs, will include cases in Status Code 22.

     

  4. If further development is required after the Preliminary Letter activities have begun, the case will be returned to the examiner and reactivated under Direct Examination Time, Status Code 12.

4.10.8.11  (06-10-2005)
Corrected Reports

  1. This section includes instructions for correcting reports which include errors.

  2. A corrected report should be prepared if a report with the taxpayer’s signature is found to be in error.

    1. Across the top of the corrected report write "Corrected Report."

    2. In the other information or remarks section write, "This report supersedes report dated (date). "

    3. The taxpayer’s signature is only required on the corrected report if the change is in the government’s favor, i.e., more tax or less refund. If the taxpayer disagrees with the corrected report, unagreed case processing procedures are applicable.

     

  3. The original report will be voided by drawing a diagonal line across the report and writing "This report superseded by report dated (date)."

  4. Both the original and corrected reports are included in the case file.

  5. If the correction of an error results in additional tax due or less refund, the case may be processed for the amount of the deficiency, overassessment, or penalty shown incorrectly on the original waiver or report. The dollar amount of the error in relation to the total corrected deficiency should be considered when determining if the error should be waived. See SB/SE Delegation Order 4.41 for tolerance levels and delegations of authority.

4.10.8.12  (05-14-1999)
Issues Requiring Special Reports and Forms

  1. This section includes examination issues which require computations on a standard form. When an adjustment is proposed in any of these areas, the applicable form should be completed and attached to the examination report to clarify how the adjustment was determined.

4.10.8.12.1  (05-14-1999)
Depreciation

  1. Use Form 1914, Computation of Allowable Depreciation Deduction to compute allowable depreciation expenses.

4.10.8.12.2  (06-10-2005)
Passive Activity Loss Limitations

  1. Worksheets should be provided to the taxpayer in cases in which the passive loss, the allowed loss and the disallowed (suspended, carryover) loss must be allocated among the various passive activities so the activities can be properly reported in subsequent years.

4.10.8.12.3  (06-10-2005)
Adjustments to Net Operating Loss (NOL)

  1. Any adjustment to a net operating loss deduction should be completely explained in the report. The adjustment on Form 4549 should be identified as a NOL carryback with source year identified or NOL carryforward adjustment.

4.10.8.12.3.1  (06-10-2005)
Computation of the Net Operating Loss

  1. A report which proposes an adjustment to a net operating loss deduction should include all computations necessary to fully explain the source year and amount of any net operating losses.

  2. The computation will include the modifications required by IRC § 172(d).

  3. Form 3621, Net Operating Loss Computation,