Opinion
10164-20
08-22-2024
CATHERINE L. LAROSA, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Ronald L. Buch, Judge.
Pending before the Court is Mrs. LaRosa's Motion for Reconsideration, filed pursuant to Rule 161, Tax Court Rules of Practice & Procedure, on August 16, 2024. "Reconsideration under Rule 161 serves the limited purpose of correcting substantial errors of fact or law and allows the introduction of newly discovered evidence that the moving party could not have introduced, by the exercise of due diligence, in the prior proceeding." Estate of Quick v. Commissioner, 110 T.C. 440, 441 (1998). Because Mrs. LaRosa's motion does not identify a substantial error of fact or law or any newly discovered evidence, we will deny her motion.
In LaRosa v. Commissioner, 163 T.C. No. 2 (July 17, 2024), the Court granted summary judgment in favor of the Commissioner on the question of whether Mrs. LaRosa was entitled to innocent spouse relief under section 6015(f). Specifically, the Court held, "innocent spouse relief under I.R.C. § 6015(f) is available only for unpaid taxes or deficiencies." The Court further held, "an erroneous refund consisting only of interest does not give rise to an unpaid tax or a deficiency." The natural result of these two holdings is that Mrs. LaRosa is not eligible for relief under section 6015(f).
The Commissioner's Motion for Summary Judgment, filed November 10, 2020, argued, "Because the erroneous refund is not a tax liability, the Court does not have jurisdiction under section 6015(e) to hear petitioner's section 6015(f) request for relief." Motion, p.2. Although couched in terms of jurisdiction, the Commissioner's argument was that an erroneous refund does not give rise to an unpaid tax or deficiency. In his Memorandum of Law in Support of his Motion, the Commissioner argued, "Once an assessed tax liability is paid (i.e., satisfied), the tax liability and the assessment are extinguished." Memorandum of Law, p.10. The Commissioner further argued that his "issuance of an erroneous refund to petitioner did not create a new tax liability or assessment, as it was a non-rebate refund not subject to the deficiency procedures set forth in section 6212." Memorandum of Law, p.11. And lastly, the Commissioner argued, "There is no tax deficiency resulting from the Erroneous Refund Suit, the liabilities and assessments in connection with the 1980s TC case were not revived by the Erroneous Refund Suit." Memorandum of Law, p.14. In sum, the Commissioner argued that there was no unpaid tax or deficiency that could be the subject of a claim for innocent spouse relief.
The Commissioner titled his Motion as a Motion to Dismiss for Lack of Jurisdiction, but the substance of his Motion was whether an erroneous refund of interest is eligible for relief from joint and several liability. Because that issue is a question of law directed at the substance of the case, and not one of jurisdiction, the Court recharacterized the Motion as a Motion for Summary Judgment. LaRosa, slip op. at 7.
Mrs. LaRosa confronted these issues in her Objection to the Commissioner's Motion. She acknowledged the issue in dispute, writing: "Respondent contends that the liability does not represent 'any unpaid tax or any deficiency (or any portion of either)' as contemplated by IRC § 6015(f). Petitioner disagrees." Objection, p.15. Regarding the Commissioner's characterization of the refund at issue as a non-rebate refund, Mrs. LaRosa thoroughly presented her position, dedicating a section of her Objection to the issue of whether "The Erroneous Refund was a Rebate Refund." Objection, pp.17-21; see also Sur-Reply to Reply to Objection, pp. 5-8.
Mrs. LaRosa argues that the Court's holding "that Mrs. LaRosa's liability - the erroneous refunds at issue - is not eligible for innocent spouse relief under I.R.C. § 6015(f) as a matter of law" was "not squarely addressed by the parties." Memorandum in Support of Motion for Reconsideration, p.4. In substance, the Commissioner's Motion, Mrs. LaRosa's Objection, the Commissioner's Reply to Objection, and Mrs. LaRosa's Sur-Reply to reply to Objection confronted these issues directly.
In her Memorandum in Support of Motion for Reconsideration, Mrs. LaRosa suggests that the Court made a substantial error of law for two reasons. She argues first that the Court contradicted the plain language of section 6015(f), and second that the Court undercut Congress's intent. Memorandum in Support, pp.1-2. In support of her first argument, Mrs. LaRosa states,
The dispositive question in this case, as the Court recognized, is whether the erroneous refunds of interest for 1981 and 1982 paid to the LaRosas gave rise to unpaid taxes or deficiencies. Slip op. at 8. The Court, however, proceeded to answer a different question; namely, whether the erroneous refunds were rebate or nonrebate refunds, which dictates how the Government must go about recovering an erroneous refund.
Memorandum in Support, p.5. But the question of whether the erroneous refund of interest gave rise to an unpaid tax or deficiency turns on the nature of that refund. As the Court wrote, "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." LaRosa, slip op. at 10 (emphasis added, internal citations omitted). Thus, Mrs. LaRosa errs when she suggests "the Court does not address whether the erroneous refunds of interest to the LaRosas gave rise to unpaid taxes." Memorandum in Support, p.9. The Court held that the erroneous refund was a non-rebate refund that does not give rise to an unpaid tax.
And the Court likewise addressed her argument, re-raised in her Memorandum in Support at pages 9-10, that erroneously refunded interest might give rise to an unpaid tax. The Court observed that "how the Internal Revenue Code treats interest depends on the type of interest and the purpose for which we are considering the question." LaRosa, slip op. at 14. The Court concluded, "Neither underpayment interest under section 6601 nor overpayment interest under section 6611 is considered a tax for purposes of determining a rebate. As a result, an erroneous refund consisting solely of interest is not a rebate and does not give rise to an unpaid tax or deficiency." Id.
In her Memorandum in Support, Mrs. LaRosa directs us to section 6015(f)(2) in an effort to expand the relief that Congress authorized. But section 6015(f)(2) is not the provision that authorizes relief; it limits the relief that may be provided. The relief provision at issue is found in section 6015(f)(1), which, when "taking into account all the facts and circumstances, it is inequitable to hold the individual liable for any unpaid tax or any deficiency," authorizes the Secretary to "relieve such individual of such liability." As used in the latter phrase, "such liability," refers back to "any unpaid tax or any deficiency." "Such" refers to something "having just been mentioned." Black's Law Dictionary (9th ed. 2009); see also, Bryan A. Garner, Garner's Modern English Usage 1052 (5th ed. 2022) ("Such is properly used as an adjective when reference has previously been made to a category of people or things" and "such is a pointing word that must refer to a clear antecedent"). The limitation found later in section 6015(f)(2) cannot expand on the scope of relief authorized by section 6015(f)(1).
Mrs. LaRosa also directs us to section 6015(b) to argue for expanding the scope of section 6015(f). Memorandum in Support, p.11. She rightly observes that section 6015(b) authorizes relief "of liability for tax (including interest, penalties, and other amounts)." In making that observation, however, she omits the further limitation (contained in the same sentence) that relief is only available "to the extent such liability is attributable to such understatement." I.R.C. § 6015(b)(1)(E). An understatement refers the difference between the tax reported and the tax required to be shown on a return. I.R.C. § 6662(d)(2)(A). The erroneous refund at issue, however, is not attributable to an understatement.
Mrs. LaRosa concludes her Memorandum in Support with a policy argument as to why relief under section 6015(f) should be broader than the Court's application of the text of the statute. She argues, "the Court's application of I.R.C. § 6015 flies in the face of Congress's intent." Memorandum in Support, p.16. But the starting point in discerning congressional intent is the statutory text. See United Therapeutics Corp. v. Commissioner, 160 T.C. 491, 507 (2023). Policy considerations cannot override the text of the statute. Id., 160 T.C. at 522-23.
Because Mrs. LaRosa's motion does not identify a substantial error of fact or law or any newly discovered evidence, it is
ORDERED that Petitioner's Motion for Reconsideration of Findings or Opinion Pursuant to Rule 161 is denied.