I hope it's OK to start a thread on this; I ran a search and found threads for prior tax years, but not for TY 2021.
To start things off, I'll ask about something that happened to my TY 2020 return, which may affect my filing for TY 2021. This is a 1041 return for a family trust. For TY 2020, when preparing the 1041 I calculated that I had overpaid by (approximately) $2000. Instead of requesting a refund, I selected the choice to have that overpayment credited to my future 2021 return.
A few months after filing the 2020 return, I received a terse notice from IRS stating that I owed an additional $700 (roughly), which I paid promptly by check. The notice did not indicate how the IRS arrived at the additional amount due, or what it meant for the amount that I had previously requested be applied to my 2021 taxes. So now I'm uncertain if I can still claim that full $2000 amount as a credit towards my 2021 taxes, as intended, or if some or all of it was actually "consumed" by the IRS towards my 2020 tax liability, which was apparently more than I had calculated.
When a taxpayer indicates the choice for an overpayment to be credited to next year's return, does IRS "lock it in" for only that purpose, or can IRS apply some or all of that "overpayment" amount to the current-year tax due, if additional tax liability is discovered? Thanks for any feedback.