It doesn't really matter what some idiot at the IRS said.  CONGRESS writes the law, and the law says it is allowed.

First, get something in WRITING that says that is the reason why they are denying it.  I suspect the reason is actually some other reason.  If that is why they are denying it, then respond to the IRS with this information:

Section 32 of the tax code is for EIC.  It uses AGI, not a Modified AGI.  Nothing in the new law changed that.

Section 85(c) of the tax code is for the unemployment exclusion.  It says that up to $10,200 of unemployment can be excluded from the taxpayer's "gross income".  No part of that (including no conforming amendments) is for Section 32 (EIC).

https://www.law.cornell.edu/uscode/text/26/32

https://www.law.cornell.edu/uscode/text/26/85