Court says erroneous interest refund can qualify for innocent spouse relief
Catherine L. LaRosa v. Commissioner. United States Court of Appeals for the Fourth Circuit. No. 24-2034.
If the IRS mistakenly refunds underpayment interest and a taxpayer ends up owing money, that taxpayer can still ask for equitable innocent spouse relief under §6015(f). The IRS cannot deny the request just because the debt came from an erroneous refund.
Holding
The Fourth Circuit decided that an erroneous refund of underpayment interest counts as a liability for “unpaid tax” under §6015(f). This meant the taxpayer could request equitable innocent spouse relief, and the IRS had the authority to review the request. The Court overturned the Tax Court’s decision and sent the case back for further review.
Why It Matters
This is a significant taxpayer-favorable interpretation of §6015(f).
The decision expands access to innocent spouse relief in cases involving erroneous refunds of underpayment interest.
The IRS can no longer rely on the argument that an erroneous refund automatically falls outside the scope of §6015(f), at least within the Fourth Circuit.
The ruling focuses on eligibility for relief, not whether relief must ultimately be granted.
The decision may affect other cases involving long-standing collection actions tied to erroneous refunds and interest computations.
Key Facts
Catherine LaRosa and her late husband filed joint returns for many years.
The IRS assessed tax deficiencies for 1981 through 1983 and acknowledged overpayments for 1984 and 1985.
The dispute centered on the proper calculation of interest associated with those underpayments and overpayments.
In 1994, the IRS recalculated the interest and issued a refund to the LaRosas.
The IRS later determined the refund was erroneous and successfully sued to recover it.
After the government sought to foreclose on the family’s home in 2019, Catherine LaRosa requested equitable innocent spouse relief under §6015(f).
The IRS refused to process the request, asserting that §6015(f) does not apply to erroneous refund liabilities.
The Tax Court agreed with the IRS, prompting the appeal.
Statutory Framework
§6015(f) allows the IRS to grant equitable innocent spouse relief when it would be inequitable to hold a taxpayer liable for unpaid tax or a deficiency.
§6601 imposes interest on underpaid taxes.
§6601(e)(1) provides that references to “tax” throughout the Internal Revenue Code generally include underpayment interest unless a specific exception applies.
One exception applies to certain deficiency procedures in Chapter 63, but §6015 is not in that chapter.
Arguments
Taxpayer argued:
The liability resulting from the erroneous refund represented unpaid tax because underpayment interest is treated as tax under §6601(e)(1).
Therefore, the liability qualified for equitable relief under §6015(f).
Government argued:
An erroneous refund does not create an unpaid tax eligible for §6015(f) relief.
Once the original liability was paid, it was extinguished and could not later be treated as unpaid tax.
Only certain types of erroneous refunds, known as rebate refunds, could potentially revive tax liability for these purposes.
Court’s Reasoning
Section 6015(f) applies to liabilities for unpaid tax.
Section 6601(e)(1) explicitly states that references to tax generally include underpayment interest.
Because §6015(f) refers to unpaid tax, the statute also encompasses underpayment interest.
The Chapter 63 exception in §6601(e)(1) does not apply because §6015 is located elsewhere in the Code.
The government’s argument that payment permanently extinguished the liability focused on collection procedures rather than the existence of the underlying tax obligation.
The Court distinguished prior cases involving assessments and collection procedures because those cases did not interpret §6015(f).
The Court rejected the IRS’s attempt to make the outcome depend on the rebate versus nonrebate refund distinction, finding no support for that distinction in the text of §6015(f).
Plain statutory language controlled the outcome.
Result
The Fourth Circuit overturned the Tax Court’s decision and sent the case back for more review of the taxpayer’s request for equitable innocent spouse relief.
The Takeaway
This decision does not determine whether LaRosa will receive innocent spouse relief. It only says the IRS has to consider her request.
For tax professionals, the main takeaway is simple: debts from erroneous refunds of underpayment interest can be covered by §6015(f). The IRS cannot automatically rule out these debts from innocent spouse relief just because they come from an erroneous refund.
List of Citations
§6015(f) — Equitable innocent spouse relief provision at issue.
§6601(a) — Imposes interest on underpayments of tax.
§6601(e)(1) — Treats underpayment interest as tax for most Code provisions.
Greer v. Commissioner, 557 F.3d 688 (6th Cir. 2009) — Recognized that an erroneous refund can revive an unpaid tax liability.
Bilzerian v. USA, 86 F.3d 1067 (11th Cir. 1996) — Collection procedure case distinguished by the Court.
Singleton v. United States, 128 F.3d 833 (4th Cir. 1997) — Assessment procedure case distinguished by the Court.
LaRosa v. Commissioner, No. 24-1455 (4th Cir. May 18, 2026) — Holds that erroneous refunds of underpayment interest may qualify for §6015(f) relief.