Obtain the work papers used to develop the sales factor. Ask the taxpayer to fully explain how the work papers were developed. Reconcile total sales per schedule R to the federal 1120. The taxpayer should not use the annual report sales if there are substantial differences in accounting methods between the books and the tax return, for example, operating leases vs. capital leases or differences in recognition of loan fees. Insure that the taxpayer includes net gains on asset sales in the factor.
Net gains means netting gains and losses from asset sales of each entity.
Thus it would not be correct to only include gains in the factor. If the net of gains and losses result in a negative amount, the correct amount for factor purposes is zero. One affiliate's net loss on sale of assets would not reduce another affiliate's net gain. Review the financial entity's operations in general so that you can develop audit steps for the numerator. For example, some financial corporations have incorporated each branch for limited liability reasons.