Catherine L. LaRosa, 163 T. C. 2, filed 7/17/24, seeks innocent spousery from IRS’ collective activity to get back an erroneous refund of interest. Way back when, Catherine’s spouse got nailed for tax fraud by the MD authorities, whereupon IRS hit spouse with a jeopardy assessment. Spouse settled out with IRS, while reserving the right to fight the computation of interest. Apparently spouse had what a certain Nobel laureate in Literature called “high office relations in the politics of Maryland,” and IRS gave back the money, 163 T. C. 2, at p. 3.

IRS subsequently brought a Section 7405 action to get the money back. Catherine says include her out, per Section 6015(f) equity. IRS says negatory, Tax Court has no jurisdiction over refund of interest; no tax, no SNOD, no NOD.

Judge Ronald L. (“Ingenuity”) Buch, never one to check a flop, says all Catherine needs for Section 6015(f) is a set of Hamiltons and a timely petition, per the explicit terms of the statute.

“The Commissioner is mistaken when he argues that we lack jurisdiction over Mrs. LaRosa’s request for innocent spouse relief. Mrs. LaRosa satisfied both requirements for our jurisdiction: She submitted to the Commissioner a request for equitable relief pursuant to section 6015(f), and she timely filed a Petition with the Tax Court. For this purpose, we consider the Commissioner’s letter… to be ‘the Secretary’s final determination of relief available to the individual’ because it explicitly set forth the Commissioner’s final determination that ‘[i]nnocent spouse doesn’t consider relief for erroneous refunds.’” 163 T. C. 2, at p. 6.

But Catherine hasn’t got the nuts. True, IRS sued under Section 7405, which allows suit for taxes erroneously refunded; those are rebates of tax. But not every refund is a rebate of tax.

“Section 7405(b) provides an avenue to recover an erroneously refunded tax. But the mere fact that the Commissioner prevails in an erroneous refund suit does not give rise to an unpaid tax. Courts have held that once a tax liability is paid in full, that tax liability is extinguished unless it is revived by an erroneous rebate refund. And while the government can recover an erroneous rebate refund by filing suit under section 7405(b), it can also recover through an erroneous refund suit erroneous nonrebate refunds, which are not considered tax. Thus, determining whether an erroneous refund gives rise to an unpaid tax turns on whether the erroneous refund is a rebate or nonrebate refund.” 163 T. C. 2, at p. 10. (Citations omitted).

There are refunds arising out of miscalculated tax; those are rebates. But Catherine’s spouse paid all the tax due before IRS sued for the erroneously refunded interest. There’s no miscalculated tax, overpaid tax or underpaid tax.

While IRS can issue a SNOD to assess an underpaid (because erroneously refunded) tax, there is no underpaid tax here.

No innocent spousery for Catherine. But her trusty attorneys, including without in any way limiting the generality of the foregoing (as my expensive colleagues say), the Harvard Fierce Fighters and Georgetown’s finest, s/a/k/a The Right Catherine, get a Taishoff “Good Job, Second Class.”

See my blogpost “Unfogged,” 3/26/24.