U.S. Appeals Court Overturns Tax Court, Finds Erroneous Interest Refunds Eligible for Equitable Relief

The U.S. Court of Appeals for the 4th Circuit held that the taxpayer’s liability for an erroneous refund of underpayment interest constituted “unpaid tax” eligible for equitable relief under IRC §6015(f)(1), vacating the Tax Court’s judgment and remanding for further proceedings. Taxpayer, a married individual, filed joint returns with her deceased husband for decades and had a long history of IRS interactions. Following a settlement regarding underpayments and overpayments for multiple tax years, the IRS initially calculated interest amounts resulting in a net liability, which the taxpayer paid in full, but later issued a refund after recalculating the interest to ...