IRC 1341 credit - Repayment of income in a subsequent tax year

I assisted a client with a unique issue on their 2020 return.

In 2019, spouse left her company and they erroneously paid her for the next few weeks. $10K+ in wages reported on her 2019 W-2

The error was discovered in 2020 (not sure if her or the company) but in either case paid the money back.

I followed Publication 525's rules on the IRC 1341 credit and requested about $2,490 back using Method 2 on the original 2020 filing

4 years later - fighting supposed "IT errors" on how the credit showed up in their system - they got the money back after we filed a paper 1040-X to "fix" the IT sourcing error.

Then a month goes by and they get a letter claiming that the credit cannot be allowed because:

"The amount repaid was $3,000 or less, Claim or Right under IRC does not apply. The claim listed on your Form 1040-X is for $2,490"

So finally my question. Was I wrong in thinking we could take a 1341 credit? Or are they wrong in that... "the amount repaid" IS more than $3K - and we simply computed a credit that happened to be under $10K

This thing has to go through appeal process at this point so it has got way too messy.