Fourth Circuit Holds that § 6015(f)(1) Innocent Spouse Equitable Relief Can Apply to Erroneous Refund Interest (5/22/26)

I write what I call a notice blog today on a case involving the innocent spouse equitable relief provision, § 6015(f)(1), as applicable to erroneous refund interest. The case reverses and remands a Tax Court "T.C." decision on an issue that is, I think, not commonly encountered. So most practitioners should just know the bottom-line holding and then can pursue it further if they ever encounter it. I do think students should be concerned with the case.

In LaRosa v. Commissioner, 176 F. 4th 323 (4th Cir. 2026), 4^th Cir. here and GS here, the Court provides this good summary at the beginning:

A provision of the tax code gives the Internal Revenue Service discretion to “relieve” a taxpayer of “liability” for “any unpaid tax or any deficiency.” 26 U.S.C. § 6015(f)(1). Sometimes, the IRS refunds money to a taxpayer but later concludes it erred in doing so. Our sole question in this appeal: When the IRS mistakenly refunds interest payments a taxpayer made on previously underpaid taxes, does the taxpayer have a “liability” for “unpaid tax” that is eligible for discretionary relief under Section 6015(f)(1)? Because we conclude the answer is yes, we vacate the tax court’s judgment and remand for further proceedings.

I have summarized the holding of the case in a footnote in my working draft for the 2026 Federal Tax Procedure (Practitioner Edition) as follows:

In LaRosa v. Commissioner, ___ F.4th ___ (4th Cir. 2026), the Court held in an esoteric application of § 6015(f) that the IRS could grant equitable relief for interest (as opposed to tax) erroneously refunded to the taxpayer. I won’t discuss LaRosa further because I don’t see it as a situation that will be encountered often.

Court Holds that Erroneous Refund Suit Accrues on the Date the Taxpayer Receives the Check (11/5/21)

In United States v. Page, No. CV-20-08072-PCT-JAT, 2021 U.S. Dist. LEXIS 206339 (D. Ariz. Oct. 25, 2021), CL here, the court held that, based on controlling 9^th Circuit precedent, an erroneous refund suit accrues on the date the taxpayer receives  the refund check rather than later date (specifically when the taxpayer cashes the check).  That holding is consistent with the court’s prior holding that I discussed here:  When Does the Statute of Limitations Start on the Erroneous Refund Suit? (4/29/21), here.

I offered what I can in the earlier blog entry, so I point to that here.  I will just say that, if indeed 9^th Circuit precedent controlled the result, I think it the precedent is wrong, but only the 9^th Circuit can overrule the precedent.  See my thoughts in the earlier blog entry.

When Does the Statute of Limitations Start on the Erroneous Refund Suit? (4/29/21; 6/30/24)

I recently read and posted a comment to the following blog discussion:  Keith Fogg, Late Filed Erroneous Refund Suit (Procedurally Taxing Blog 4/22/21), here.  I wanted to explore further the issue of the starting date for the statute of limitations for erroneous refund suits.  Readers will recall that § 7405 permits an erroneous suit for refund which is "erroneously made.”  Section 6532(b) says that the statute of limitations to initiate the erroneous refund suit is “2 years after the making of such refund, except that such suit may be brought at any time within 5 years from the making of the refund if it appears that any part of the refund was induced by fraud or misrepresentation of a material fact.”  (The Regulation, § 301.6532-2, merely repeats the statute.)  Both the 2- and 5-year statutes of limitations require a starting date.

The Procedurally Taxing Blog linked above discusses a case, United States v. Page, No. 3:20-cv-08072 (D. Ariz. April 16, 2021),  here, involving the following facts:

• 5/5/17 – IRS mails taxpayer an erroneous refund check for $491,104. 
• ??/??/?? – Taxpayer receives the erroneous refund check
• 4/5/18 – Taxpayer cashes the erroneous refund check.
• ??/??/?? – IRS writes to request return of the erroneous refund
• 12/19/19 – Taxpayer responds by returning $210,000.
• 331/20 – IRS sues for erroneous refund.

The Government moved for default judgment.  Taking seriously its obligation to test the validity of the Government’s claims even on default judgment, the Court held (Slip Op. 3):

Under Ninth Circuit law, “[t]he refund is considered to have been made on the date the taxpayer received the refund check.” United States v. Carter, 906 F.2d 1375, 1377 (9th Cir. 1990); see also O’Gilvie v. United States, 519 U.S. 79, 91 (1996) (“[T]he law ordinarily provides that an action to recover mistaken payments of money accrues upon the receipt of payment.” (internal quotation marks and citation omitted)).

Under the facts outlined above, that meant that the statute of limitations foreclosed the erroneous refund suit absent fraud (which the Government did not allege).

There are two problems with the holding.  First, I think it makes no sense (as I noted in my then off-the-cuff comment to the Procedurally Taxing Blog entry because I don’t think the Government could have brought an erroneous refund suit until (i) at the earliest the refund check was cashed and perhaps (ii) until the refund check cleared.  I address that below.  Second, on a more procedural issue, I think the language of the Ninth Circuit precedent was dicta and not persuasive dicta, so the Page Court was not bound by it.  I address that issue below.

Accrual of the Erroneous Refund suit

Erroneous Refund Suit is Timely Filed (9/20/12)

In United States v. Davenport, 2012 U.S. Dist. LEXIS 131468 (ND TX 2012), here, the Court held in an erroneous refund suit that the Government's suit had been timely filed.  The erroneous refund suit is brought under Section 7405, here.  The statutes of limitations for such suits is in section 6532, here, which provides:

(b) Suits by United States for recovery of erroneous refunds 

Recovery of an erroneous refund by suit under section 7405 shall be allowed only if such suit is begun within 2 years after the making of such refund, except that such suit may be brought at any time within 5 years from the making of the refund if it appears that any part of the refund was induced by fraud or misrepresentation of a material fact.

Here's the Court's entire discussion on the timeliness of the Government's erroneous refund suit (footnotes omitted):

The parties acknowledge that the earliest possible date that the statute of limitations could have commenced to run is December 28, 2007, the date that the IRS prepared and mailed David and Myra Davenport's refund check for the 2003 tax year. The Davenports contend that the Government's claim accrued on December 28, 2007, and it was therefore required to file suit by December 27, 2009. The court disagrees, as this argument, if not frivolous, is certainly specious.