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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 2 qualifying children, both under the age of 6. The taxpayers received a total of $3,600 in AdvCTC payments. The tax year 2021 return is filed MFJ, has a MAGI of $118,500, and 1 qualifying child over the age of 6.Determine if the MAGI exceeds the income threshold:$60,000 × 200% = $120,000MAGI = $118,500The repayment protection phase out applies.a) Calculate the difference between the MAGI and the income threshold:$118,500 − $60,000 = $58,500b) Calculate the reduction percentage:$58,500 ÷ $60,000 = .975.975 × 100 = 97.5%c) Determine the potential repayment protection amount:2 − 1 = 11 × $2,000 = $2,000d) Calculating the phase out amount:$2,000 × 97.5% = $1,950e) Calculating the reduced safe harbor amount:$2,000 − $1,950 = $50Application of the repayment protection amount:$3,600 (AdvCTC payments) − $3,000 (TY 2021 credit) = $600 (excess AdvCTC payments received)Result:$600 (excess AdvCTC payments received) − $50 (reduced repayment protection amount) = $550The total tax will be increased by $550.

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

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