Erroneously Refunded Underpayment Interest Constitutes “Unpaid Tax” Eligible for § 6015(f) Innocent-Spouse Relief

1. Introduction

In Catherine LaRosa v. Commissioner of Internal Revenue (4th Cir. May 18, 2026), the Fourth Circuit addressed a narrow but consequential question at the intersection of tax “innocent spouse” relief and the IRS’s treatment of interest. Catherine LaRosa, who filed joint returns for decades with her now-deceased husband, sought equitable relief under 26 U.S.C. § 6015(f)(1) after the government—following decades of dormancy—moved in 2019 to foreclose on the LaRosas’ home to collect a long-outstanding judgment tied to a mistaken IRS refund issued in 1994.

The IRS refused even to process LaRosa’s § 6015(f) request, asserting that “no amount is currently owed” and that § 6015(f) does not authorize relief for “erroneous refunds.” The Tax Court agreed, granting summary judgment to the Commissioner on the theory that the erroneous refund did not create “any unpaid tax or any deficiency.”

The Fourth Circuit vacated and remanded, holding that where an erroneous refund returned underpayment interest (interest the taxpayer owed on previously underpaid tax), the resulting debt is a “liability” for “unpaid tax” eligible for discretionary equitable relief under § 6015(f)(1).

Key issue

When the IRS mistakenly refunds underpayment interest previously paid, does that create (or re-create) a “liability for any unpaid tax” that the IRS may relieve under § 6015(f)(1)?

2. Summary of the Opinion

Judge Heytens (joined by Judges Rushing and Berner) held that:

• § 6015(f)(1) permits the IRS to relieve an individual of liability for “any unpaid tax.”
• 26 U.S.C. § 6601(e)(1) directs that, outside the deficiency-procedure carve-out, any reference to a “tax” in Title 26 “shall be deemed also to refer” to underpayment interest imposed by § 6601.
• Therefore, underpayment interest that is unpaid (including because it was mistakenly refunded) is “unpaid tax” for § 6015(f)(1) eligibility purposes.

The Fourth Circuit rejected the government’s attempts to avoid this textual conclusion (including reliance on “rebate/nonrebate” refund doctrine and procedural cases about assessments). The judgment was vacated and the case remanded for further proceedings, including unresolved questions the Tax Court had not reached.

3. Analysis

A. Precedents Cited

1) Standard of review and interpretive method

• Iames v. Commissioner, 850 F.3d 160, 163-64 (4th Cir. 2017): cited for the court’s de novo review of the Tax Court’s summary judgment.
  Influence: framed the appellate posture—this was a pure legal question suitable for de novo review.
• Loper Bright Enters. v. Raimondo, 603 U.S. 369, 394 (2024): cited for the principle that courts must exercise “independent judgment” in determining statutory meaning.
  Influence: signaled that the Fourth Circuit would decide the meaning of § 6015(f)(1) based on text and ordinary tools of interpretation, not deference-driven frameworks.
• Sirius Sols., L.L.L.P. v. Commissioner, 165 F.4th 374, 379 (5th Cir. 2026): cited as an example of a court applying Loper Bright in Internal Revenue Code interpretation.
  Influence: reinforced that the interpretive approach applies in tax cases too.

2) Procedural assessment cases invoked (and limited) by the government

• Bilzerian v. USA, 86 F.3d 1067 (11th Cir. 1996) (per curiam): the government relied on it to argue that once a liability is paid, it is “extinguished” and cannot become “unpaid tax” again.
  How the Fourth Circuit used it: distinguished it as a case about IRS collection procedure after a satisfied assessment, not about the meaning of “unpaid tax” in § 6015(f). The court also treated any broader language as nonbinding.
• Greer v. Commissioner, 557 F.3d 688, 691-92 (6th Cir. 2009): cited to rebut the government and to characterize Bilzerian’s sweeping language as “dicta.”
  Influence: provided persuasive authority that an erroneous refund can “revive” liability and render it “unpaid,” even where the refund is “not a rebate refund.”
• Singleton v. United States, 128 F.3d 833, 838 (4th Cir. 1997): cited for its discussion of “rebate” refunds in the procedural context of assessments.
  Influence: the court used Singleton mainly to show what it didn’t decide—Singleton dealt with procedural requirements for assessments to reclaim an erroneous refund, not § 6015(f) eligibility or the meaning of “unpaid tax.”

3) “Interest treated as tax,” and the nature of liability vs. assessment

• Hibbs v. Winn, 542 U.S. 88, 100 (2004): quoted for the proposition that an assessment is essentially a “bookkeeping notation,” while liabilities are “imposed” by the Code.
  Influence: supported the court’s key move: eligibility under § 6015(f) concerns current statutory obligations, not the historical status of an assessment.
• Funkhouser v. United States, 260 F.2d 86, 87 (4th Cir. 1958) (per curiam): cited for the proposition that “[t]he statute itself ‘imposes’ the tax.”
  Influence: further separated the taxpayer’s statutory liability from IRS accounting or collection steps.

4) Out-of-circuit “erroneous refund” cases—cited to reject rebate/nonrebate as controlling

• Pacific Gas & Elec. Co. v. United States, 417 F.3d 1375, 1381, 1383 (Fed. Cir. 2005): cited for the view that unpaid liability following an erroneous refund is tied to the taxpayer’s “statutory obligation under the tax code to pay the government.”
• Willson v. Commissioner, 805 F.3d 316, 320 (D.C. Cir. 2015): cited in accord with Pacific Gas on the statutory-obligation framing.
• United States v. Frontone, 383 F.3d 656, 660-61 (7th Cir. 2004): cited similarly.

Influence: The Fourth Circuit used these cases to show that, even where courts discuss erroneous refunds, the central analytic anchor is the continuing statutory obligation—not a rigid “rebate/nonrebate” taxonomy—particularly when the interpretive question is “unpaid tax.”

5) Text-over-policy and remand discipline

• Julmice v. Garland, 29 F.4th 206, 210 (4th Cir. 2022): quoted for the proposition that “no amount of policy-talk can overcome plain statutory text.”
  Influence: capped the court’s analysis: even if the government dislikes the policy outcome, text controls.
• Moses Enters., LLC, v. Lexington Ins. Co., 66 F.4th 523, 529 (4th Cir. 2023): cited for the “court of review, not of first view” principle.
  Influence: justified leaving the “interest-on-interest” eligibility question to the Tax Court on remand.

6) Prior LaRosa litigation background

• United States v. LaRosa, 993 F. Supp. 907, 918 (D. Md. 1997): described as the district court judgment ordering repayment of the 1994 refund plus interest.
• United States v. LaRosa, 155 F.3d 562 (4th Cir. 1998) (per curiam) (unpublished table decision): noted as affirming the district court.

Influence: These decisions explain why a debt existed and why foreclosure arose; they did not resolve the statutory interpretation question under § 6015(f).

B. Legal Reasoning

1) The holding turns on a textual cross-reference rule: § 6601(e)(1)

The court framed the interpretive path as straightforward:

• § 6015(f)(1) authorizes discretionary relief from “liability” for “any unpaid tax.”
• § 6601(a) imposes underpayment interest when tax is not paid in full.
• § 6601(e)(1) then supplies a broad interpretive rule: outside “subchapter B of chapter 63, relating to deficiency procedures,” any reference in Title 26 to a “tax” is “deemed also to refer” to interest imposed by § 6601.

Because § 6015(f) sits in “subchapter A of chapter 61” (not “subchapter B of chapter 63”), the carve-out does not apply. The consequence is doctrinally significant: for § 6015(f) eligibility, “tax” includes underpayment interest by express statutory command.

2) Rejecting the government’s “carve-out” argument

The government pointed to the § 6601(e)(1) exception for “subchapter B of chapter 63, relating to deficiency procedures.” The court rejected the argument because:

• the exception is textually limited to that location and purpose; and
• § 6015(f) is elsewhere in the Code.

This move reflects a classic structural interpretive principle: explicit carve-outs are usually confined to their stated scope.

3) Rejecting the “paid once, always paid” theory: liability vs. assessment

The government’s “extinguishment” theory argued that because the LaRosas once paid the underpayment interest, the liability could not later become “unpaid” after the IRS refunded it. The Fourth Circuit refocused the inquiry: § 6015(f) asks whether the taxpayer has a current “liability” for “unpaid tax,” not whether an IRS assessment was previously satisfied. Relying on Hibbs v. Winn and Funkhouser v. United States, the court emphasized:

• Assessments are accounting mechanisms (“bookkeeping notation”).
• Tax liabilities are imposed by statute.
• Eligibility under § 6015(f) therefore turns on whether statutory obligations are currently satisfied.

Once the IRS mistakenly returned money that legally should have remained paid toward underpayment interest, the taxpayer again owed that amount as a matter of statutory obligation—making it “unpaid” in the ordinary sense relevant to § 6015(f).

4) Rejecting the rebate/nonrebate framework as a gatekeeper for § 6015(f)

The government’s primary theory attempted to import a “rebate” versus “nonrebate” distinction from erroneous refund/assessment procedure cases. The court declined for multiple reasons:

• No textual hook: § 6015(f)(1) does not mention rebates, unlike § 6211(a) (deficiency definition) which expressly does.
• Wrong context: Singleton v. United States and Bilzerian v. USA addressed IRS collection procedures (e.g., when a new assessment or deficiency notice is required), not the meaning of “unpaid tax” for equitable-relief eligibility.
• Contrary persuasive authority: Greer v. Commissioner found a nonrebate erroneous refund could still revive liability such that it “became unpaid.”
• Other circuits’ framing: Pacific Gas & Elec. Co. v. United States, Willson v. Commissioner, and United States v. Frontone connect the debt to the taxpayer’s continuing statutory obligation, rather than elevating the rebate/nonrebate label into a dispositive threshold rule.

Importantly, the Fourth Circuit confined its discussion: it expressed “no view about the applicability or operation of the rebate/nonrebate distinction in any other context,” limiting the holding to § 6015(f)(1).

C. Impact

1) Practical expansion of the § 6015(f) eligibility gateway (in interest-refund scenarios)

The decision establishes—at least within the Fourth Circuit—that a taxpayer is not categorically barred from seeking § 6015(f) discretionary relief merely because the outstanding balance traces to an erroneous refund, so long as what is unpaid qualifies as “tax” under the Code’s interpretive rules—here, underpayment interest via § 6601(e)(1). This matters because innocent-spouse disputes often arise long after filing, and interest can dominate the balance.

2) Textual “interest treated as tax” reasoning likely to travel

The court’s reasoning is driven by broad statutory language (“Any reference ... to any tax ... shall be deemed also to refer to interest ...”). That textual architecture is not Fourth-Circuit-specific. The opinion therefore provides a template for other courts confronting whether particular liabilities—especially interest components—fit within “unpaid tax” language in other remedial provisions.

3) Limits: eligibility is not entitlement

The holding only clears the threshold: underpayment interest is the kind of “unpaid tax” for which the IRS may grant equitable relief under § 6015(f)(1). Whether LaRosa should receive relief depends on the IRS’s and Tax Court’s equitable analysis on remand (i.e., whether “it is inequitable to hold” her liable under the provision’s standards and administrative guidance).

4) Open questions preserved for remand

• Allocation/disaggregation: the government argued it is “impossib[le]” to disaggregate underpayment vs. overpayment interest within the refund-created liability; the court did not resolve the factual/accounting question.
• Interest-on-interest: whether interest accrued on the erroneously refunded underpayment interest itself qualifies as “unpaid tax” under § 6015(f) remains undecided.

4. Complex Concepts Simplified

• Underpayment interest: Interest a taxpayer must pay when they did not pay enough tax by the due date. Imposed by § 6601(a).
• Overpayment interest: Interest the government pays the taxpayer when the taxpayer overpaid and is owed a refund. Referenced here under § 6611.
• Erroneous refund: Money the IRS refunds but later concludes it should not have refunded; the government may seek recovery (e.g., via a suit under § 7405).
• Assessment: The IRS’s formal recording of a tax debt—important procedurally, but (as Hibbs v. Winn explains) not the source of the liability itself.
• “Interest treated as tax” rule (§ 6601(e)(1)): A cross-reference rule saying that when Title 26 refers to “tax,” it generally also includes underpayment interest—except in the specified deficiency-procedure area.
• Rebate vs. nonrebate refund: A classification sometimes used in procedural cases about how the IRS can recoup refunds. The Fourth Circuit held this classification does not control the meaning of “unpaid tax” for § 6015(f)(1) eligibility.
• Innocent spouse / equitable relief (§ 6015(f)): A discretionary remedy allowing the IRS to relieve a spouse from joint-return liability when it would be inequitable to hold them liable, even if other forms of statutory relief do not apply.

5. Conclusion

The Fourth Circuit’s central contribution is a clear rule of statutory characterization: an erroneous refund of underpayment interest can leave a taxpayer with a “liability” for “unpaid tax” eligible for discretionary innocent-spouse relief under 26 U.S.C. § 6015(f)(1), because § 6601(e)(1) deems references to “tax” in Title 26 to include underpayment interest (outside the deficiency-procedure carve-out).

Doctrinally, the opinion (1) privileges Code text over administrative framing and policy objections (invoking Julmice v. Garland), (2) separates substantive liability from procedural assessment mechanics (drawing on Hibbs v. Winn), and (3) refuses to let the rebate/nonrebate taxonomy—developed in different procedural disputes—act as atextual gatekeeping in the § 6015(f) context. On remand, the Tax Court must address the unresolved equitable and accounting questions under the correct legal premise: LaRosa’s underpayment-interest debt is, as a matter of law, “unpaid tax” within § 6015(f)(1).