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4 - Erroneous AbatementThe timely filed TC 150 return for TY 2018 is determined to be a nullity. The valid taxpayer filed a return reporting tax of $.00 and withholding of $2,500 which posted as a TC 976. Form 14039 is included with the return. The ASED for the valid return is expired. Based on the original return, the account shows TC 150 tax of $5,000, and withholding of $6,000. A CP 2000 proposing a tax increase of $2,000 based on unreported income is issued to the valid taxpayer’s last known

Example:

Internal Revenue Manual Part 25. Special Topics · 2026-10-03 edition · updated 2026-10-04 · United States

AdvCTC payments were based on a tax year 2020 return filed MFJ. The return includes 3 qualifying children under the age of 6. The taxpayers received a total of $5,400 in AdvCTC payments. The tax year 2021 return was filed MFJ, has a MAGI of $55,000, and 1 qualifying child (age 6).The repayment protection is not subject to phase out, because their MAGI is below the applicable income threshold.3 (children on TY 2020 return) − 1 (child on TY 2021 return) = 22 × $2,000 = $4,000 (repayment protection amount)$5,400 (AdvCTC payments) − $3,000 (TY 2021 credit) = $2,400 (excess AdvCTC payments received)The taxpayer will not increase their tax, because the repayment protection amount is more than the amount of excess AdvCTC payments received.

The repayment protection amount is fully phased out when the taxpayer’s MAGI is 200% or more of the applicable income threshold.

$120,000 for married filing joint and surviving spouse

$100,000 for head of household

$80,000 for all other filing statuses

When the repayment protection amount is subject to phase out, calculate the correct repayment protection amount following the steps below:

Subtract the applicable income threshold amount in paragraph (19) from the MAGI.

Divide the difference from step a) by the applicable income threshold amount in paragraph (19) to calculate the reduction percentage.

Determine the total potential repayment protection amount as described in paragraph (20) above.

Multiply the total potential repayment protection amount from step c) by the reduction percentage from step b) to determine the phase out amount.

Subtract the phase out amount calculated in step d) from the potential repayment protection amount calculated in step c) to determine the reduced repayment protection amount.

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▸Contents — Internal Revenue Manual Part 25. Special Topics
Internal Revenue Manual Part 25. Special Topics

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