1. The only harm is the interest and penalties that they will charge on the thousand dollars that they say you owe - and those will disappear if your trace turns up the fact that the money was owed to you all along.
2. No. You're going to get bills in the mail. And while this won't trigger an audit there is never any guarantee that you won't be audited.
3. The return will not be rejected for the incorrect child tax credit amount. Processing will take longer. Which won't matter much since you owe them money.
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