There are two types of certificates of deposit, i.e., a standard certificate of deposit and an original issue discount certificate.

The position of the Department of Justice (DOJ), Tax Division is that, except for unusual circumstances, it will not recommend the prosecution of criminal investigations which are based upon the subject ’s failure to report interest from original issue discount certificates before maturity, except under unusual circumstances.

In these investigations, a willfulness issue usually arises from the subject’s lack of actual possession, use, and enjoyment of the interest during the holding period.

Similar problems should not arise in investigations involving standard certificates of deposit when the interest is made available to the subject.

When preparing a prosecution report proving the omission of income from a certificate of deposit, the special agent must properly identify the type of certificates of deposit in question. Copies of Forms 1099, as well as copies of the actual certificates of deposit, must be exhibited in the prosecution report.

In addition, the prosecution report should address the issue of willfulness by discussing whether the principal and interest on a matured certificate was rolled over into a new certificate of deposit, whether premature withdrawal of the principal is subject to penalties, and whether there was a premature redemption.

The basic approach to the specific item method of proof involves a two step process:

When it is not possible to specifically identify the items of income which were not reported on a subject’s tax return, due to a lack of accurate books and records, the special agent may use the aggregate approach to the specific item method of proof in calculating the subject’s correct taxable income. This approach requires that the special agent specifically identify all of the subject ’s items of income and then compare that amount to the subject ’s total reported taxable income. For example, if the subject ’s return shows gross receipts of $150,000, the special agent may develop a specific item investigation by showing through third-party documentation that the subject has actually received $200,000 in gross receipts during the same period. The special agent does not have to identify the specific items of income that were not reported ($50,000) as he/she has specifically identified the individual items that make up the gross receipts and determined that amount exceeds the aggregate amount of gross receipts reported on the subject ’s income tax return. The following example will illustrate the aggregate approach to the specific item method of proof:

As shown by the above example, the special agent can use the aggregate approach and prove that gross receipts are understated without examining the subject’s books and records. However, if the subject’s books and records are available, the special agent must attempt to reconcile them to the tax return.

The Supreme Court, while firmly approving the net worth method of proof, cautioned, in Holland v. United States, 348 US 121, 125 (1954), that "it is so fraught with danger for the innocent that the courts must closely scrutinize its use."

The Supreme Court set forth three requirements that the government must satisfy prior to using the net worth method of proof:

Net worth increases are determined by establishing a net worth at the beginning of a given year and then comparing this beginning net worth with the net worth at the end of the year. The opening net worth is the point from which net worth increases are measured. While every effort should be made to identify all of the assets and liabilities of the subject at the starting point, the government does not have to establish the opening net worth with mathematical certainty.

Without a doubt, determining how much cash an individual has "on hand" at the beginning or end of a year is an extremely difficult task. To require mathematical certainty would eliminate the possibility of using the net worth method of proof.

The thoroughness of the investigation is crucial in determining whether the government has established the subject ’s opening net worth with reasonable certainty. When the government chooses to proceed against a subject using the net worth method of proof, "the government assumes special responsibility of thoroughness and particularity in its investigation and presentation." United States v. Hall, 650 F. 2d 994, 999 (9th Cir. 1981).

Success in overcoming attacks on the legal sufficiency of the evidence supporting an opening net worth is directly related to the extent and thoroughness of the investigation. Although not a model, the Mastropieri investigation does furnish an excellent example of a number of steps that must be taken to establish an opening net worth. US v Mastropieri, 685 F. 2d 776, 779 (1982). For example, in Mastropieri:

Another method of establishing a starting point for cash on hand is to analyze the subject’s available finances for the years leading up to the starting point. Such a "source and application of funds" approach can also be used to bridge the years to the starting point from some point in time when cash on hand has been firmly established. The following is an example of how a source and application of funds computation can be used to establish a firm starting point in a net worth investigation.

First, the special agent must determine the total amount of funds available (taxable and nontaxable) during 1993 through 1996. From this amount, he/she will subtract the subject’s personal expenditures for the period. This will yield the maximum amount of funds available for the subject’s net worth at the beginning of 1997.

Second, the special agent subtracts the subject ’s beginning net worth figure (the amount the investigation revealed as of December 31, 1996, without the cash on hand figure) from the total funds available for net worth. This will account for non-personal living expenditure payments by reflecting the payments made to increase assets and decrease liabilities.

Funds used to purchase assets disposed of prior to the starting point can be included as funds applied, if their disposition is traced and the funds from the disposition are accounted for as funds available. The advantage of using this method is that the beginning net worth can be used as funds applied. If the subject has a large beginning net worth, it may be possible to overcome the subject’s reported income for prior years and show that he/she could not have had cash on hand at the starting point. This can also be used to establish a maximum possible cash on hand figure. It is important that the subject be given credit for all sources of funds available (both taxable and nontaxable) in the period for which the source and application method is used.

When using the one unit source and application of funds method to establish a firm starting point, the beginning net worth must be adjusted for any asset purchased and completely paid for prior to the source and application years. This is necessary because no funds were applied during the source and application period to purchase the asset. This point is illustrated in the following example:

This method can be used to establish cash on hand at the starting point if the subject does not cooperate during the investigation, or to corroborate the subject’s admission of cash on hand. A source and application of funds cannot be used in every investigation but, in certain instances, can be a valuable tool in determining possible cash on hand.

As mentioned earlier, the cash on hand figure is often the most difficult item to establish. Whenever possible, it is best to establish specific cash on hand figures for each year. However, after exhausting all of the various leads, contradictions may still exist or the special agent may have no specific information at all. In order to work around this issue, approximate figures are often used; however, this may not be the best solution. In investigations where no cash on hand information can be found, the special agent can enter beginning cash on hand as zero.

In situations where the subject had some available currency which was used in previously identified currency transactions, a constant figure of an unknown amount represented by a dash (-) can be used in a net worth calculation to symbolize cash on hand.

The dash (-) indicates that the "inventory" of undeposited coin and currency cannot be quantified, but that facts and circumstances, i.e., evidence in the investigation, indicate that cash on hand or inventory of undeposited currency either remained constant or increased during the period. United States v. Giacalone, 574 F.2d 328, 333 (6th Cir. 1978) (" The recognition of a cash bankroll treated as a constant, together with proof which would support a finding that no significant cash hoard existed, [is] a sufficient accounting for cash in the opening net worth computation. " ) See also United States v. Sabino, 274 F.3d 1053, 1072 (6th Cir. 2001). The Sixth Circuit makes clear the dash method cannot be used to overcome the defense of a cash hoard, or as a way to avoid determining an opening balance of cash on hand.

After the special agent has established a firm starting point and identified the amount of cash on hand, the next step is to calculate the subject’s change in net worth for the prosecution years. Once the change (increase or decrease) in the subject ’s net worth has been determined, the special agent makes adjustments to that figure and arrives at the subject’s corrected adjusted gross income. Perhaps the most difficult phase in calculating a subject’s corrected taxable income is identifying, documenting, and correctly applying the adjustments to the subject ’s change in net worth for the nondeductible and nontaxable items. These adjustments are necessary in arriving at the subject ’s corrected adjusted gross income figure from the calculated increase or decrease in net worth. The following paragraphs will identify common adjustments to the calculated increase or decrease in a subject ’s net worth.

The following are examples of adjustments for personal expenditures and nondeductible items which are added to the subject ’s change (increase or decrease) in net worth:

The following are examples of adjustments for nontaxable items which are subtracted from a subject’s change (increase or decrease) in net worth:

No adjustment is necessary to net worth increase or decrease for:

The adjustments to corrected adjusted gross income are the standard or itemized deductions and the personal exemptions.

Due to the calculated increase in adjusted gross income, the special agent should increase the itemized deductions for items allowed which the subject failed to claim. Likewise, the special agent should also decrease the itemized deductions for threshold items affected by an increase in adjusted gross income.

Corrected adjusted gross income less the itemized deductions and personal exemptions results in the subject’ s corrected taxable income. When the taxable income that was reported on the income tax return is deducted from the corrected taxable income, the final figure is additional taxable income based on the net worth method of proof.

Defense counsel usually contends there is no evidence of willfulness. This contention may be overcome by evidence outlined in IRM 9.1.3, Criminal Statutory Provisions and Common Law.

The subject usually claims that there was a large amount of cash on hand which the government has not considered in the beginning net worth. The subject also may claim that cash balances are wrong for years subsequent to the base year.

In all investigations where the net worth method is the primary method of proving income, the special agent should anticipate this defense and accurately establish the cash on hand figure for the starting point and throughout the prosecution years to negate this defense.

Admissions by the subject are most effective to determine the cash on hand amount and should be obtained during the initial interview or early in the investigation. (See IRM 9.5.9.5.5, Establishing the Starting Point.)

In most investigations, the subject’ s spouse should also be questioned about cash on hand, as well as other matters. In order to avoid any misunderstanding by the subject, it is suggested that the meaning of cash on hand be explained prior to discussing the matter.

The subject (and spouse) should be questioned regarding their financial history from the time they were first gainfully employed. This information will serve in many investigations to check the accuracy of the subject’s statements about cash on hand.

In addition to admissions, evidence used to establish the beginning net worth will most often be sufficient to refute the defense of cash on hand.

The usual sources of nontaxable income claimed by the subject are gifts, loans, and inheritances. Negating evidence of the type will often be sufficient to overcome these claims as described in the subsections listed below:

Special agents should not rely upon inventory figures on the subject’s returns as prima facie evidence to establish the values of assets in the net worth computation. Some subjects, either through ignorance or for other reasons, report inventory at retail value instead of at cost or some other value. (In a net worth computation where the assigned value of the inventory used exceeds cost and is larger at the end of the investigative period than the beginning, income will be overstated.) To resolve this, the special agent should attempt to corroborate the inventory figures shown on the subject’s returns by admissions of the subject, statements of employees who took the inventory, copies of inventory records, amounts shown on state or local property tax returns, etc.

In certain investigations, a subject may falsely claim to be holding, as nominee of another (usually unidentified) individual, funds or other assets the government included in the subject’ s net worth computation. Special agents should interview the subject about this matter in the early stages of the investigation.

This defense is usually based upon a net worth computation of taxable income made by the subject’s accountant for years prior to the starting point. This computation will show an operating loss prior to the prosecution. The defense strategy is to carry forward the loss to the prosecution years and reduce the alleged tax deficiency as much as possible.

To overcome this defense, special agents should make a net worth determination of income for several years prior to the prosecution period and then on the basis of this computation either:

The objective of this defense is to reduce taxable income by claiming nonexistent loans, usually from the subject’ s friends or relatives. This defense may be overcome by showing that the alleged lender was financially unable to lend the amount claimed. The special agent should attempt to obtain and then corroborate the details of the claimed loans by interviewing the individuals who allegedly made the loans to the subject.

The matter of loans should be covered during the initial subject interview.

In some investigations, the subject and spouse may report income on separate returns, but assets they acquired are held jointly. If the jointly held assets are included in the net worth computation, the claim may be made that they were acquired with the spouse’ s income.

This defense can be overcome by tracing the invested funds back to the subject and showing the disposition of the spouse’s income.

There may be investigations in which the funds of the subject and spouse are so intermingled that it is not possible to trace the invested or applied funds to either party. In such investigations, use the net worth method of proof to determine the corrected taxable income of both the subject and the spouse, and then deduct the taxable income of the spouse to arrive at the subject’s corrected taxable income.

There are several states that have community property statutes. Under community property laws, income, assets and liabilities are equally divided between spouses. If the subject and/or his/her spouse reside in a community property state, the appropriate laws must be applied to compute the subject ’s income, expenses, assets, and liabilities.

As a result of the Gleckman decision, the following evidentiary facts are used to establish a prima facie bank deposits investigation:

The fact that a subject deposited a sum of money in a bank account does not prove the funds deposited therein were taxable. The fact that the subject received and cashed a large check, in and of itself, does not prove the funds received were taxable. In order to establish those funds represented taxable income, the following must be shown:

The courts have held there is no necessity to disprove the accuracy of the subject’s books and records as a prerequisite to the use of the bank deposits method.

In the analysis of bank deposits, the sums deposited (or credited) to all of the subject’s various accounts are totaled to determine gross deposits. This includes any interest and dividends credited to the subject during the investigation period. When the subject holds bank accounts in fictitious names, or with special titles such as trustee account or trading account, deposits to those accounts must also be included in the subject’s total deposits. The analysis of bank deposits is not limited to bank checking and savings accounts, but includes deposits to:

If the subject itemized checks on a deposit slip and then deducted an amount for "less cash," only the net amount deposited should be considered in computing income.

An increase in the subject’s cash on hand is treated as a currency expenditure. Since the subject may contend that the unexplained deposits into the bank accounts came from a cash hoard, it is crucial to thoroughly establish and document any increase in the subject ’s cash on hand.

The special agent must begin by documenting the cash on hand at the starting point and then document cash on hand at the end of each year under investigation. The cash on hand increase (or decrease) is then determined for the first year of the investigation by subtracting the cash on hand at the starting point from the cash on hand at the end of the first investigative year. (Cash on hand decreases will be discussed later.)

It is important to interview the subject early in the investigation to accurately identify a maximum cash accumulation for each year under investigation. (See IRM 9.5.9.5.5.(11).)

All of this information is necessary to establish the consistency and reliability of the subject’s statements. Usually, no direct evidence of cash on hand is available. Statements made about the source, amount, and use of funds can be corroborated or refuted with additional evidence.

Non-negotiated instruments purchased or received during the year and held at the end of the year must be properly accounted for in the bank deposits formula. Non-negotiated instruments include:

When non-negotiated instruments are purchased by check, total deposits are increased by the amount of the non-negotiated instruments. Non-income items are increased by a like amount. This is similar to a transfer as money deposited in the bank is being converted to a non-negotiated instrument.

If the subject receives a monetary instrument as a gift and has not negotiated it at year-end, total deposits and non-income items are each increased by the amount of the instrument.

Total deposits are not increased to reflect the value of non-negotiated instruments purchased in currency. This amount is included as a currency expenditure in the bank deposits formula.

Technically, if a cash basis subject received checks as income and had not negotiated them at year-end, they must be added to total deposits to accurately calculate income. The checks are income in the year they are received. However, if this is the subject’ s normal business procedure, then the relevance of this "timing" issue should be discussed with the Criminal Tax (CT) Counsel.

Amounts that are automatically withheld from the subject’s wages must be included when using the bank deposits method, unless they are included in deposits to another account. These items include withheld taxes, health and life insurance premiums, retirement fund contributions, savings account allotments, Federal Insurance Contributions Act (FICA), child support and or alimony payments, loan payments, and any other payroll deductions made by the employer for the benefit of the employee. The special agent should include only those items that are not included elsewhere in the computation. An example of an item that may appear elsewhere in the computation would be automatically withheld savings account allotments. These allotments would be picked up with the total deposits to the savings account.

All documented cash expenditures, regardless of the source of the currency, are added to total deposits. Even in the most thorough investigations, there are certain currency expenditures that are impossible to document. These expenditures, i.e., groceries, laundry, meals, gasoline, etc., cannot be added to total deposits unless they are fully documented. Only those currency expenditures which are documented, either directly or indirectly, can be included in the bank deposit computation.

If the subject claimed business expenses on his/her return in excess of the amount of business expenses he/she paid by check, the balance should be treated as a cash expenditure and included in the bank deposits computation.

If the subject alleges additional currency business expenses not claimed on the return, these should be allowed, after adding a like amount to the cash expenditures figure in the computation.

Any documented expenditure made by the subject (business or personal) should be analyzed to determine what portion of that expenditure was made by check. If the amount of the expenditure exceeds payments made by check, the balance should be considered a cash expenditure and included in the bank deposits computation.

In addition to currency expenditures, all non-cash items should be added to deposits. These items include:

All potential nontaxable sources of funds should be discussed with the subject during the initial interview. If the subject refuses to communicate with the special agent outside the presence of an attorney, consider contacting the subject’s attorney. Explain to the attorney that if their client has received funds from nontaxable sources that could explain the apparent understatement of income, it would be to the subject’s advantage to come forward with this information.

It is the government’s responsibility to elicit all available information concerning the subject ’s claims as to his/her nontaxable sources of funds. The special agent should attempt to obtain this information early in the investigation. The sooner the subject’s claims can be verified or refuted, the sooner the special agent can determine whether or not there is a viable investigation.

All potential nontaxable sources of funds should be thoroughly investigated by questioning the subject’s spouse, relatives, friends, and associates.

The special agent should examine all available documents, i.e., (banking records, public records etc.,) and follow-up leads that could identify potential nontaxable sources of income and/or commingled funds.

The special agent should determine the source or disposition of funds related to the acquisition and/or sale of assets.

Nontaxable items will often appear as large or unusual deposits in the bank accounts.

All funds from nontaxable sources must be accounted for when using the bank deposits method of proof to calculate the subject ’s potential understatement of income.

Deducting nontaxable funds ensures that all deposits, cash expenditures, and increases in cash on hand which are included in the subject’s gross income are derived from taxable sources. Failure to eliminate all known non-income deposits and items results in an overstatement of income and could prove fatal to the criminal investigation. Examples of non-income deposits and items include:

Cash on hand is one of the most common and troublesome areas in any indirect method computation. Because a cash hoard defense is so difficult to refute, subjects frequently claim their cash hoard was of a sufficient amount to account for any understatement of income. The special agent must anticipate this potential defense and be able to prove that the subject had a large sum of cash which is not represented in the bank deposit computation.

Evidence that may negate the existence of a cash hoard includes:

It may be possible to reconstruct the subject ’s cash on hand from prior earnings records. If cash on hand for an earlier period can be reasonably established, income earned from that period forward to the starting point could be used to establish a maximum available cash on hand. ( See IRM 9.5.9.5.5.1, An Indirect Approach for Establishing a Starting Point.)

If an investigation discloses an increase or decrease in cash on hand during the prosecution period, an adjustment to the bank deposits formula must be made. If there is an increase to cash on hand, it is added to deposits and currency expenditures in the bank deposits computation; at the same time, any decrease in cash on hand is considered a non-income item.

Loan proceeds received by the subject must be accounted for as a non-income item. The key word in the above sentence is "received." The subject must have physically received the funds.

If a subject has a mortgage on his/her home, the mortgage was paid directly by the lender to the seller of the home. Since no funds passed through the subject’s hands, there is no need to account for any loan proceeds in this transaction.

However, if the subject had obtained a loan from a lender and actually received the loan amount in cash, a check that was subsequently cashed, or by way of a transfer of funds to the subject’s account, the loan proceeds must be accounted for as a non-income item.

If the subject made a loan in prior years and contends that part of the understatement of income is in fact a repayment of that loan, the special agent must document the repayment of principal by contacting the borrower. All repayments of principal loaned by the subject should be treated as a non-income item.

Monetary gifts, cash, checks, etc. must also be included as a non-income item in the bank deposits formula.

The special agent should document the gift and determine whether the donor was financially able to make the gift. Obtain all of the necessary documents and other information from the donor. Check for filed gift tax returns, if applicable.

If the subject received an inheritance, obtain all necessary documents and information from the executor or administrator of the estate to verify the inheritance. Check for filed estate tax returns and check the probate records of deceased relative’s estate. Any such inheritance is also treated as a non-income item.

Transfers between accounts should be classified as non-income items.

A subject who maintains several accounts, or one who has opened and closed accounts during the years under investigation, generally will have transfers between accounts. A detailed examination of deposit slips and account statements should be made to determine all possible transfers between accounts.

Generally, any return of capital is classified as a non-income item in the bank deposits method. However, the treatment of assets sold in a bank deposits investigation differs depending on the nature of the asset, i.e., whether it was a personal asset, a business asset, or stock.

When the subject sells a personal asset there is no allowable loss relative to the transaction. Instead, such transactions are treated as a return of capital which is limited to the cost basis or adjusted basis of the asset, if there is a gain, or the sale price if there is a loss. The following example is an illustration:

The above stated tax treatment applies only to personal assets that are sold. Using the same example above, if the subject traded in the 1995 vehicle on a 1999 model that cost $30,000, there is no return of capital. The subject did not physically receive the money. The return of capital was rolled into the new vehicle.

The sale of a business asset or of stock is treated somewhat differently because it can result in an allowable taxable loss. The proper way to treat these assets is to use the cost (or adjusted basis) as the return of capital.

When stocks and/or other business assets are sold, and the sale results in a net capital loss, that loss must be limited to $3,000 in accordance with USC loss limitations. This is done by adding back any disallowed loss to the bank deposits formula. See ADD: Capital losses exceeding $3,000 in the formula. (See IRM 9.5.9.7.4, Complete Bank Deposits Method of Proof Formula.)

In order to compute the return of capital on a stock transaction, the special agent must first determine the subject ’s basis in the stock. If the stock sale (gain or loss) was reported on the subject’s return, use the method the subject elected on their return when computing the gain or loss for the stock transaction.

If stock sales are not reported on the return, and stock sales have been made during the period under investigation, the special agent should analyze any available evidence and determine if it is possible to identify the shares that were sold. If the subject only bought the stock on one occasion, then multiply the number of shares purchased by the purchase price and add in the sales commission. The total is divided by the number shares purchased to arrive at the basis per share. This figure is then multiplied by the number of shares sold to arrive at the basis for the shares sold. This figure is then subtracted from the sales price realized, not including the sales commission, and the resulting figure is the subject ’s gain or loss on the sale.

An attempt to identify the shares sold can also be made by contacting the brokerage firm and comparing the date on the stock certificates being held with the information available on the statements. An example of this would be if the subject purchased 200 shares of SAYS stock in January 1996 with a basis of $10 per share. Then, in February 1996, the subject purchases 50 more shares of stock with the basis of $5 per share. In March 1996, the subject sells 100 shares of stock. It cannot automatically be assumed the 100 shares sold were the initial 100 shares purchased. However, if the brokerage firm is contacted and they are holding only the certificate for the 50 shares purchased in February 1996, then it can be concluded that the subject did indeed sell the initial 100 shares purchased.

If the brokerage firm is not holding the stock certificates, and the special agent cannot determine from the available records which shares were sold, the special agent must resort to computing the gain or loss using the method which is most advantageous to the subject. This involves computing the basis of the stock using the Last-in, First-out (LIFO), First-in, First-out (FIFO), and Average methods. The sales commission should be included when computing the basis of the stock purchased. However, when stock is sold, the commission is not included in the computation. This computation is only made when the basis of the stock cannot determine the basis from available records.

When dealing with a subject who reports business activity through a Schedule C, it may be necessary to include a cost of goods sold computation when utilizing the bank deposits method.

A reduction in inventory is a situation where there is a deduction and no cash outlay. Whenever inventories are a factor in determining income, it is necessary to make an adjustment for changes in inventory, unless the subject ignored them on the return. This requires that the special agent compute the cost of goods sold. This is done by adding purchases to the beginning inventory and subtracting the ending inventory. The cost of goods sold is then included in the computation of gross income. These steps are illustrated in the bank deposits formula.

All business expenses and costs must be allowed to the subject whether paid by check or in cash. If the analysis of checks or other evidence leaves doubt about the disbursements, it is preferable to allow all items, except those which are undeniably nondeductible, i.e., items such as personal expenses, investments, and gifts. When canceled checks are not available for analysis and classification, every effort should be made to identify any and all items which constitute allowable expenses whether paid out of a bank account or from undeposited cash.

Often, the total business expenses on a Form 1040, Schedule C will exceed the expenses for which checks or specific evidence of cash disbursements are found. In these instances, the amounts claimed by the subject should be allowed by assuming the difference was paid in cash. Increasing currency expenditures in the bank deposits formula offsets the effect of allowing business expenses paid in cash as a deduction.

If personal or capital expenditures are improperly classified as business expenses, the deduction for business expenses will be overstated, gross receipts will be unaffected, and net taxable income will be understated. Without proof that personal or capital items were claimed fraudulently as business expenses, they cannot be disallowed.

The allowable depreciation on all known depreciable assets must also be deducted. Depreciation is treated separately, since this is a deduction from which no cash outlay is required in the year the deduction is taken.

All the available adjustments to income must be allowed in computing adjusted gross income. This would include applicable Individual Retirement Plan (IRA), Keogh and Simplified Employee Pension Plan (SEPP) deductions, moving expenses, one half of the self employment tax deduction, the self employed health insurance deduction, penalty on early withdrawal of savings, and alimony paid.

All allowable personal deductions, itemized or standard, and exemptions must be deducted from adjusted gross income to arrive at taxable income.

Per statute, itemized deductions and personal exemptions may be subject to limitation or phase out depending on the subject ’s income. The special agent should make adjustments to these amounts as necessary.

In a criminal investigation, reported taxable income can be increased only by the amount of the criminal adjustments. If an error was made in the preparation of a subject’s return and income is understated, the amount must be included as a non-income item in arriving at taxable income for criminal purposes.

If the subject unintentionally overstated expenses, no adjustment is necessary. The subject would be allowed the expenses per the return. Each non-fraud item must be separately allowed as claimed on the return or as corrected whichever is to the best interest of the subject. Technical adjustments in favor of the government cannot be made, offset, or netted against technical adjustments in favor of the subject.