QB Issue Resolution:
The Credit Memo item should not be a Payment Item but an Other Charge Item linked to the Other Current Asset account.
Then, the question is, where are your unpaid Payroll liabilities? They should be in a liability account, so that you can apply the Asset amounts to the Debt you owe.
Or, link the Credit Memo item to the same account as you tracked the IRS balance owed, to see it go down.
Resolution for Issue 'Handling customer payments taken by the IRS' available: Yes (Solved).
Source: Intuit Community forum.
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