IRS changed tax refund for ACTC amount - Can't figure out why

[BulldogTom]

My clients had their return held up by IRS and finally got their refund.   It is $380 less than expected.   That amount is the ACTC from 8812.   The TP claim 1 child under 17 and one adult child.   Total CTC is $2,500.   Calculated tax before CTC is $2,120.  8812 adds the $380 of CTC back as refundable credit.

All the worksheets seem to tie out in ATX.   No errors or warning when we filed it.

Did I do something wrong or could this be a mistake by IRS?

Thanks

Tom
Sparks, NV

[TexTaxToo]

Anything's possible this year.  Any idea why it was held up?  Is it possible that ACTC was disallowed in the past and they are still banned or you did not file Form 8862?

[BulldogTom]

3 minutes ago, TexTaxToo said:

Anything's possible this year.  Any idea why it was held up?  Is it possible that ACTC was disallowed in the past and they are still banned or you did not file Form 8862?

No, this client has the same return every year for the last 4-5 years.   Claim their daughter and granddaughter who live with them and whom they support fully.   Very simple return.  No UI, no EITC...very simple and straight forward return.

Tom
Sparks, NV

[Tax Prep by Deb]

Looks to me like they applied the ctc for the child under 17 (2000.00) first to the taxes owed, then the balance owed to the dependent over 17 (120.00) leaving the tax at zero and no refundable credit.  

[BulldogTom]

On 8/26/2021 at 4:40 PM, Tax Prep by Deb said:

Looks to me like they applied the ctc for the child under 17 (2000.00) first to the taxes owed, then the balance owed to the dependent over 17 (120.00) leaving the tax at zero and no refundable credit.  

Is that the correct way to apply the credit?  I think the way we applied it is correct, and ATX did not throw an error or even a warning.   If I am wrong I would really like to know why.  I cannot locate a source for ordering of the application of credits to tax in this situation.  If you are using up refundable credits on taxes that non-refundable credits could absorb, then why have them be refundable credits. 

Thanks

Tom
Longview, TX

[jklcpa]

Tom, I agree that the non-refundable should be applied first to reduce the liability, and the refundable credits come after that, and that is why those are included in the "payments" section of the return.

I'm not sure if this will help you sort this out, but here is IRM and the credits application is in sec 21.6.3.4, and the ordering of nonrefundable credits is at 21.6.3.4.1 :

https://www.irs.gov/irm/part21/irm_21-006-003r#idm140499595953776

 

[Marie]

I have several returns with changes to their refunds.  I can't seem to find an error in most of them and don't know what to do to help.  Calling seems useless and writing a letter is a forever wait. 

[Lee B]

Given all the late and retroactive tax law changes for which the IRS couldn't reprogram their computers, I am not surprised.

The millions of tax returns hung up in processing which need "eyes on" manual intervention makes it a certainty

that there will be a number of refunds and balance due amounts that are not right.

[BulldogTom]

Finally got on the PP Line and got to an agent.   The issue is the 8396 credit.   The IRS computers read Sch 3 of the 1040 and did not pick up that it was an 8396 credit so they messed up the ordering rules.   IRS agent is trying to fix it now.   ATX is correct, but it took us about an hour to get through the  CTC worksheet.   He kept getting hung up on the line 14 calculation on that worksheet because the computer did not "see" the form in the return.

FYI if any of you have a client who got a CP12 and they lost some refund and had a 8396 in the return.

This has been bugging the snot out of me since it came up.   I am so glad I can tell the client that it was not us or our software that made the mis-calculation.   It is not a lot of money, but my reputation is worth all the effort.   No charge to the client for my time on this one.   

Tom
Longview TX

[Sara EA]

Contact the IRS liaison for your area.  They deal with systemic problems.  Explain that the computer is not reading the form and fortunately for this client, the refund will be corrected.  How about the other taxpayers who had the same issue but didn't get through to such a patient agent?  Ask that all such returns be reviewed.  The liaisons can make sure problems with IRS systems get fixed.

[BulldogTom]

I would hope that the IRS looks at the calls coming in and the agent I spoke with would forward this to whoever in the IRS programs the computer.   That may be too much of an ask, but one can hope.

I can see how this happened, the law was passed late, the IRS scrambled to do the best they can, and the Mortgage Interest Credit is not a "big" credit that is on a lot of returns.   This is only the second one I have had in 24 years in business.   

I have not been in Longview long enough to know who my liaison is.   And I need to get ready for the upcoming tax season more than I need to spend hours on the phone waiting for the IRS to answer.

Tom
Longview TX

[mcb39]

On 8/30/2021 at 10:32 AM, Marie said:

I have several returns with changes to their refunds.  I can't seem to find an error in most of them and don't know what to do to help.  Calling seems useless and writing a letter is a forever wait. 

I have also noticed that they make changes and don't attach an explanation like they used to.  They are doing a lot of changing and not telling the client or us why they did it.

[Lee B]

You are right the explanations are limited or non existent.

I have also had the same thing happen with a few state notices.

So far I have figured out the changes,  but a few times I was down to my 3rd possible scenario before it made any sense.