Opinion ID: 433554
Heading Depth: 1
Heading Rank: 4

Heading: Equitable Recoupment--By Bull or Barred?

Text: 63 The Government's final contention is that the District Court erroneously applied the doctrine of equitable recoupment, as articulated in Stone v. White, 301 U.S. 532, 57 S.Ct. 851, 81 L.Ed. 1265 (1937), and Bull v. United States, 295 U.S. 247, 55 S.Ct. 695, 79 L.Ed. 1421 (1935). The estate failed to include its refund claim as an asset of the estate, and thus the resulting federal estate taxes were underpaid. Under principles of equitable recoupment, the Government reasons, this underpayment may be recovered out of the income taxes refunded in the proceedings today, even though the limitations period for reviewing the estate taxes has run. The District Court rejected that argument, in an opinion reported at 552 F.Supp. 1132. 64 After examining the not completely consistent lower court precedent on this doctrine, we conclude that the fine opinion of the Court below is a correct statement of the law. It gave proper weight to the Supreme Court's most recent explanation of recoupment in tax litigation--Rothensies v. Electric Storage Battery Co., 329 U.S. 296, 67 S.Ct. 271, 91 L.Ed. 296 (1946). There, the High Court emphasized the limited scope, id. at 299, 67 S.Ct. at 272, of the doctrine it had applied only in Stone and Bull, id. at 300, 67 S.Ct. at 273. 65 In both [cases], a single transaction constituted the taxable event claimed upon and the one considered in recoupment. In both, the single transaction or taxable event had been subjected to two taxes on inconsistent legal theories, and what was mistakenly paid was recouped against what was correctly due. 66 Id. at 299-300, 67 S.Ct. at 272. 67 Here, the District Court correctly held that the deduction in 1971 of bad business debts for income tax purposes and the failure in 1973 to include the refund claim as an asset of the estate for estate tax purposes is not a single transaction or taxable event. 552 F.Supp. at 1140-41. We need not restate its clear reasoning.