CP12 Adjustment Made

[edwardessl]

I received a severence in late 2021 and taxes were witheld. Rehired early 2022 and paid back remaining gross severance. Filed 2022 return with Tax credit in 1040 schedule 3 Part II #13. IRS adjusted return and removed the credit. How do I file for this properly or fight IRS ruling?

[JamesG1]

What credit was claimed on 2022 Federal tax return Schedule 3 Part II and removed by the IRS?

If you received taxable severance pay in 2021 and paid it back in 2022, you may have been eligible for a claim of right repayment.

@edwardessl 

[edwardessl]

@JamesG1, It was claimed as credit under 13z 'Other payments or refundable credits'. I listed the type as taxes.

I thought I followed what I needed to under publication 525 'Repayments'. I ran the numbers as both a claim of right deduction and as a credit. Credit produced the higher return and that is what I submitted. I don't see anywhere indicating how to note this properly in a return.

Thanks

Pub525 Section 'Repayments'

"Repayment over $3,000. If the amount you repaid was more than $3,000, you can deduct the repayment as an other itemized deduction on Schedule A (Form 1040), line 16, if you included the income under a claim of right. This means that at the time you included the income, it appeared that you had an unrestricted right to it. However, you can choose to take a credit for the year of repayment. Figure your tax under both methods and compare the results. Use the method (deduction or credit) that results in less tax"

[JohnW152]

From what you state, you appear to be eligible to claim the credit. 

The CP notice probably stems from two things:

• The IRS is most likely looking for the credit on Schedule 3, line 13d.  (Note that, under Repayment over $3,000 in Publication 525, the IRS advises claiming the credit on this line for 2021 repayment.  I'm not sure why the text specifically limits it to this year, since the line is available in tax year 2022.)
• You identified the type of credit simply as "tax", and the IRS needed more to go on.  It's looking for fraudulent-type claims on this line.      See Internal Revenue Manual 3.12.3.30.10.8, Schedule 3, Line 13z, Write-in Credit (EC 358). 

It wouldn't be a bad idea to contact the IRS by phone before sending in information, using the contact information in the TurboTax Help article I got a CP12 notice from the IRS.  The IRS probably won't be able to solve the issue over the phone -- as you've noted, there's a somewhat complicated calculation involved -- but they'll be able to advise you on what you need to do to resolve your credit issue. 

You can also just go ahead and send in your information to the address reflected in your CP12 letter, stating all that you've stated here, and including the calculation page that you've prepared. Provide as much information as you can, so they won't need to contact you for additional data. 

Also see the IRS' Understanding Your CP12 Notice for more information.

[edwardessl]

Thanks @JamesG1 & @JohnW152 

After I replied I went to the link James previously provided and found my error with the "Claim of Right' field. 

Calling IRS was no help as they just said to mail in the reason for my dispute. 

I went back into Turbo Tax to work on an amended return but of course it is still taking the original incorrect credit into account and when I remove that and put it in the correct 'Claim of Right' it calculates that I now owe a little. Makes me nervous to submit it that way and end up getting a bill when I should be getting a decent amount back. So frustrating!