Estate of Bessie I. Mueller, Deceased, John S. Mueller, Personal Representative - Page 5

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            determined in the notice of deficiency, combined with                                      
            respondent's allowance in the notice of deficiency of the credit                           
            for tax on prior transfers, will result in a decision that there                           
            is no deficiency in petitioner's estate tax.4  Indeed, petitioner                          
            is entitled to recover an overpayment of its estate tax,                                   
            regardless of whether or not equitable recoupment applies in this                          
            case.5                                                                                     
                  The threshold issue we must address is whether petitioner                            
            may use equitable recoupment against respondent, where respondent                          
            has no valid claim for additional estate tax against which                                 
            petitioner needs to defend.                                                                
                  Pursuant to the doctrine of equitable recoupment, "a party                           
            litigating a tax claim in a timely proceeding may, in that                                 
            proceeding, seek recoupment of a related, and inconsistent, but                            
            now time-barred tax claim relating to the same transaction."                               
            United States v. Dalm, 494 U.S. 596, 608 (1990).  Equitable                                
            recoupment can be used as a defense by both taxpayers and the                              
            Government.  Stone v. White, 301 U.S. 532 (1937).  While                                   
            recoupment claims are generally not barred by the statute of                               

                  4This credit, which was not claimed on decedent's estate tax                         
            return, was for property received by decedent from the estate of                           
            her stepson Robert E. Mueller.  Allowance of this previously                               
            unclaimed credit was appropriate in determining the amount of the                          
            deficiency.  See sec. 6211.                                                                
                  5Both parties agree that there is no estate tax deficiency                           
            and that petitioner is entitled to a decision that it has                                  
            overpaid its estate tax, regardless of any effect that the                                 
            doctrine of equitable recoupment might have.                                               




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