Excess Deferrals - 402(g) Exceeded

[Vlad401k]

We have a participant who exceeded the 402(g) limit by about $4,000 for 2015. Now, we want to process the corrective distribution for him. He's had a net loss for the year. I have 2 questions in regards to this distribution:

1) I believe the IRS allows for any reasonable method to calculate the gain/loss. I'm trying to figure out what's best to use as the "beginning date" of the failure for gain/loss calculation purposes. Would setting the beginning date as the date on which the participant first exceeded the 402(g) limit be reasonable, or must the whole year be used (until the date of distribution) for gain/loss calculation purposes?

2) Do we simply send out the check and 1099-R that's adjusted for the loss? Would the IRS know that there was a loss when they see that the 1099-R amount is less than the amount by which the participant exceeded the 402(g) limit?