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Petitioner acknowledges that equitable recoupment is limited
to defensive use. However, petitioner argues that it should be
allowed to use equitable recoupment to defend against the
additional tax that would have been due as a result of our
valuation of decedent's stock, assuming that respondent had not
allowed the credit for prior transfers in the notice of
deficiency. Petitioner would have us apply recoupment against a
hypothetical tax liability on a transaction-by-transaction basis,
regardless of whether there was a valid claim for additional tax
liability against which to defend. On brief, petitioner
describes this as an issue of first impression.
Respondent takes the position that equitable recoupment can
be used by a taxpayer only as a defensive measure to reduce or
eliminate a taxpayer's actual liability for additional tax.
Respondent argues that once it is clear that the taxpayer has no
additional tax liability, there is no valid claim against which
to defend. Respondent contends that to allow equitable
recoupment of time-barred taxes to increase the overpayment that
is already due petitioner is the same as permitting petitioner
affirmatively to collect the time-barred overpayment of tax.
Respondent's position finds support in Mueller II where we
stated:
8(...continued)
claim can be rendered against the United States, United
States v. Shaw, 309 U.S. 495 * * * [In re Greenstreet,
Inc., 209 F.2d 660, 663 (7th Cir. 1954).]
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