Yes to all the above. The IRS can attempt to correct and the letter you received previously is important in addressing the situation. This can be sorted out and more likely than not, the IRS will have all the records necessary to do so but clearly someone's not looking at all the information. It will take some time and expertise to address but it can be done. You'll be wise to enlist the assistance of a tax attorney. Don't try to do this on your own.
Evan A. Nielsen
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Evan A. Nielsen is licensed to practice law in California. The information provided here is for educational purposes only and is not intended as legal advice for a particular matter. This response does not create any attorney-client relationship with the author. For specific advice about your particular situation, please consult an attorney.
Yes. The missed credit was caught immediately when the return was processed. However, some deduction on the return was likely caught later. This is very common as a human will often review the deduction before an audit notice is sent. The missed credit is automatic because it is so easily caught. The deductions are often not caught until the IRS runs its filters and pulls up returns that are "flagged" because of odd or large deductions.
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Unfortunately, the IRS reviews returns in stages. The fact that it initially "corrected" your return to give you a credit you didn't take and sent you a refund, is "proof" of nothing. Your 2009 return was originally due on April 15, 2010. The IRS has three years to review and send letters claiming the taxpayer owes money. Therefore, the IRS has acted well within the three-year period to claim that you owed additional money on your 2009 return.
I strongly suggest that you review the matter with a tax attorney. Local tax attorneys are probably best, but any attorney licensed by any state can practice before the IRS on a country-wide basis. Good luck, and find an attorney on Monday.
Disclaimer: Please note that this answer does not constitute legal advice, and should not be relied on, since each state has different laws, each situation is fact specific, and it is impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue. This answer does not create an attorney-client relationship. Do NOT rely on anything I have written here -- You should contact a lawyer in your area immediately after reading my posting. The following disclosure is required pursuant to IRS Circular 230: unless otherwise expressly indicated, any federal tax advice contained in this communication, including attachments and enclosures, is not intended or written to be used, and may not be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.