In a significant taxpayer-favorable decision[1], the Fourth Circuit recently held that erroneous refunds of underpayment interest may constitute “unpaid tax” eligible for equitable innocent spouse relief under Section 6015(f) of the Internal Revenue Code (“Code”). Section 6015(f) provides an avenue for relief (at the IRS’s discretion) for unpaid tax or a deficiency when it would be equitable to do so, and when relief is unavailable under Section 6015(b) or (c).[2] In Larosa, the court vacated a Tax Court decision that had categorically denied relief and instead adopted a broader reading of Section 6015(f)’s statutory framework.
The opinion is noteworthy not merely because the taxpayer prevailed, but because the court grounded its analysis in straightforward textual interpretation following the Supreme Court’s recent directive in Loper Bright.[3] In doing so, the court rejected several procedural and conceptual limitations advanced by the government and opened the door for equitable relief in situations previously thought to fall outside the scope of Section 6015(f).
Background
The taxpayer and her late husband had a lengthy history of disputes with the Internal Revenue Service (“IRS”) involving tax liabilities dating back to the early 1980s. Following an IRS assessment for underpayments in 1981 through 1983, the parties eventually reached a settlement acknowledging both underpayments and overpayments across multiple tax years.
The settlement created competing obligations. The taxpayers owed additional tax, penalties, and underpayment interest for certain years, while the IRS owed refunds and overpayment interest for others. Although the parties ultimately agreed on the underlying tax amounts, disputes persisted regarding the proper computation of interest.
After initially denying the taxpayers’ refund claim, the IRS reversed course in 1994 and issued a substantial refund based on revised interest calculations favorable to the taxpayers. The IRS later determined that refund had been issued erroneously and successfully pursued recovery litigation under Section 7405,[4] with both the district court and the Fourth Circuit requiring repayment of the refund, together with additional accrued interest.
Years later, when the government renewed collection efforts, the taxpayer, now a widow, sought equitable innocent spouse relief under Section 6015(f). The IRS refused even to process the request, taking the position that Section 6015(f) does not apply to liabilities arising from erroneous refunds. The Tax Court agreed and granted summary judgment to the government. The Fourth Circuit reversed.
The Core Legal Question
The dispute ultimately turned on a narrow but important statutory issue of whether underpayment interest that had been erroneously refunded by the IRS could still constitute “unpaid tax” within the meaning of Section 6015(f). Section 6015(f)(1) authorizes the IRS to grant equitable relief where “it is inequitable to hold” a taxpayer liable for “any unpaid tax or any deficiency.” The government argued that once the taxpayers originally paid the liability, the obligation ceased being “unpaid,” even if the IRS later refunded the money in error. The Fourth Circuit rejected that position.
Central to the court’s reasoning was Section 6601(e)(1), which expressly provides that underpayment interest “shall be assessed, collected, and paid in the same manner as taxes” and that references to “tax” throughout the Code generally include underpayment interest. The court treated this language as effectively dispositive. Because Section 6015(f) refers to “unpaid tax,” and because Section 6601(e)(1) broadly instructs that references to “tax” include underpayment interest, the court concluded that underpayment interest falls within the universe of liabilities potentially eligible for equitable relief.
Rejection of the Government’s Procedural Framework
One of the more interesting aspects of the opinion is the court’s refusal to adopt the government’s “rebate” versus “nonrebate” refund distinction. The government argued that only “rebate” refunds, that is, refunds attributable to substantive recalculations of tax liability, could revive an unpaid tax obligation for purposes of Section 6015(f). Because the subject refund allegedly constituted a “nonrebate” refund, the government contended that no qualifying unpaid tax existed.
The court found no support for that distinction in the statutory text itself. The opinion repeatedly emphasized that Section 6015(f) focuses on whether a taxpayer currently has liability for unpaid tax, not on the procedural mechanism through which the IRS seeks to recover the amount. Importantly, the court also distinguished prior cases relied upon by the government,[5] explaining that those cases primarily addressed collection procedures and assessment mechanics rather than the meaning of “unpaid tax” under Section 6015(f).
In contrast, the court viewed the operative inquiry as substantive rather than procedural. If the taxpayer presently owes money under the Code attributable to underpayment interest, that obligation may qualify as “unpaid tax” regardless of the historical path that produced the liability.
The Influence of Loper Bright
Although the opinion is primarily a tax decision, its references to administrative law are difficult to ignore. Early in the opinion, the court specifically cited Loper Bright for the proposition that courts must exercise “independent judgment” when interpreting statutes. The court then proceeded to interpret Section 6015(f) through a traditional textual analysis untethered from agency preferences or administrative limitations.
That framing may prove significant in future tax litigation. For decades, many tax disputes operated against a backdrop of substantial deference to Treasury regulations and IRS interpretations. While LaRosa does not involve a direct challenge to Treasury regulations, the opinion reflects a broader post-Loper Bright judicial willingness to independently evaluate the Code’s text without reflexively accepting agency positions.
Practical Implications for Taxpayers and Advisors
The immediate consequence of LaRosa is relatively narrow. The Fourth Circuit did not grant innocent spouse relief outright. Instead, it merely held that the taxpayer’s liability was eligible for consideration under Section 6015(f), remanding the matter for further proceedings. Even so, the decision carries several practical implications.
First, the opinion confirms that courts may interpret Section 6015(f) broadly where Congress has not expressly imposed limiting language. Taxpayers facing unusual or procedurally complicated liabilities may now have stronger arguments that equitable relief remains available notwithstanding the government’s characterization of the liability.
Second, the decision weakens the government’s ability to rely exclusively on technical assessment and refund distinctions when opposing equitable relief claims. The court repeatedly redirected the inquiry toward substantive liability under the Code rather than procedural labels attached to the IRS’s collection efforts.
Third, the opinion may encourage additional litigation concerning the treatment of interest obligations under Section 6015(f). Notably, the court expressly declined to decide whether interest accruing on erroneously refunded underpayment interest also qualifies as “unpaid tax,” leaving that issue for the Tax Court on remand. That unresolved question could become increasingly important in long-running collection disputes where accrued interest dramatically exceeds the original liability.
Conclusion
The Fourth Circuit’s decision in Larosa represents a meaningful development in the evolving landscape of innocent spouse relief and tax procedure. By focusing on statutory text and rejecting rigid procedural limitations unsupported by the Code itself, the court adopted a more expansive understanding of what constitutes “unpaid tax” under Section 6015(f). Whether other circuits follow the Fourth Circuit’s reasoning and if the IRS acquiesces to the Fourth Circuit’s holding remains to be seen. Nevertheless, LaRosa provides taxpayers and practitioners with another example of courts applying post-Loper Bright textualism in a manner that meaningfully constrains administrative narrowing of statutory relief provisions.
[1] Catherine L. Larosa v. United States, 2026 WL 1378669 (U.S. May 18, 2026).
[2] Section 6015(b) can provide relief from joint and several liability where there is an understatement of tax attributable to one spouse, and the other spouse did not know and had no reason to know that there was a potential understatement. Section 6015(c) provides another avenue to escape joint and several liability, in which the “innocent” spouse must be divorced, legally separated, or living apart from his or her spouse during the 12 months preceding the request for relief.
[3] See Gray Edmondson’s article on Loper Bright v. Raimondo, 144 S. Ct. 2244 (2024) here: https://esapllc.com/goodbye-chevron-loper-bright-enterprises-2024/
[4] IRC Section 7405 authorizes the IRS to file a civil lawsuit to recover erroneous refunds.
[5] Bilzerian v. United States, 86 F.3d 1067 (11th Cir. 1996); Singleton v. United States, 128 F.3d 833 (4th Cir. 1997).
