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...It's because of the qualified dividends. For some reason, the IRS calculated our tax strictly on the taxable income though I showed our ordinary and qualified dividends on 9a and 9b lines, respectively, on the 1040 and also submitted Schedule B. So, the IRS decided not to apply favorable dividend treatment to us :(.

...Should I call or should I mail-in? If by mail, what should I send?
Should I type a letter explaining in words or just make a copy of my Line 44 (Tax) calculation in the 1040 instructions and send back?
Do I have to include another copy of 1040?

I don't think this is something you can fix on the phone.
So send a letter, explaining the problem (in words), and enclose copies of:

1. Their notice
2. Pages 1-2 of Form 1040, CLEARLY MARKED AS "COPY"
3. Your copy of the line 44 Qual. Div./Cap. Gain tax calc. worksheet

Schedule B probably isn't necessary. It doesn't list the sources of qualified dividends.

And now for an item of unsolicited advice:

You did quite a bit of extra work doing the IRS online fill-in forms, AND then using free TurboTax to check the calculations. All to save $40 or less that it would cost to buy the package version of TurboTax, which would get you an e-file-able version of the return. I assume in your analysis, your time has no value to you.

And this is one error on their (IRS') part that would have been avoided if you had e-filed. Because what happened here is that the little-trained temp. employee at IRS who does that data entry just missed the line 9b entry. Not your mistake, but it almost cost you the extra $100 refund, as well as your time (which apparently has no value)involved in getting it, along with the postage.

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