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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

Exception:

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

When the application of the unemployment income exclusion results in the taxpayer qualifying for self-EIC, the credit will be calculated and included in the corrective adjustment. Taxpayers will not be required to file an amended return to receive self-EIC.

Accounts are identified by a TC 971 AC 123 with MISC "UCERECOVERY03112021" after being adjusted through the systemic recovery process. This indicator will be reversed with a TC 972 AC 123 when the systemic recovery process has been completed.

Taxpayers will be notified of any changes made when the account has been corrected. Any resulting overpayment of tax will be offset when a tax debt or TOP debt exists. If no debt exists, the overpayment will be refunded by direct deposit or paper check.

Taxpayers who file a return addressing fraudulent unemployment compensation reported under their TIN may include the full amount of unemployment income then reduce that amount by the amount they did not receive using Schedule 1, notating fraud, ID Theft, or similar verbiage. The systemic relief process is unable to determine the reason unemployment compensation is being reduced which may result in incorrect adjustments when systemically allowing the unemployment compensation exclusion. When the amount of unemployment income excluded on the original return is less than the amount allowable, the systemic process will input an adjustment based on unemployment income being reduced by the difference. As a result, identity theft claims filed to report unemployment fraud will need to be thoroughly researched.

Use MeF to review the original return filed. Compare the amount of unemployment income claimed with the amount excluded on Schedule 1. Review the taxpayer’s reason for excluding any amount of unemployment income.

When the taxpayer excluded the income because of fraud or ID theft, the unemployment compensation exclusion must be applied only to the portion of unemployment income the valid taxpayer received. This requires math verification, recomputation of tax return figures, and consideration of the systemic adjustment when posted to the module.

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

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