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the party asserting equitable recoupment may not
affirmatively collect the time-barred underpayment or
overpayment of tax. Equitable recoupment "operates
only to reduce a taxpayer's timely claim for a refund
or to reduce the government's timely claim of
deficiency". O'Brien v. United States, 766 F.2d 1038,
1049 (7th Cir. 1985). [Estate of Mueller v.
Commissioner, 101 T.C. at 552.]
The opinion in O'Brien v. United States, 766 F.2d 1038, 1049 (7th
Cir. 1985), also supports respondent's position that equitable
recoupment may be used only as a defense against the additional
tax that would otherwise be due:
Recoupment * * * will permit a taxpayer to recoup an
erroneously paid tax, the refund of which is time-
barred, against a timely and correctly asserted
deficiency by the government. The doctrine thus
operates only to reduce * * * the government's timely
claim of deficiency; it does not allow the collection
of the barred tax itself. In summary, the doctrine
requires some validly asserted deficiency or refund
against which the asserting party desires to recoup a
time-barred refund or deficiency.
* * * * * * *
Attempts by taxpayers to utilize the doctrine to
revive an untimely affirmative refund claim, as opposed
to offset a timely government claim of deficiency with
a barred claim of the taxpayer, have been uniformly
rejected. * * * [Id. at 1049; citation omitted.]
Likewise, in Brigham v. United States, 200 Ct. Cl. 68, 80-81, 470
F.2d 571, 577 (1972), the court explained the function of
equitable recoupment as follows:
When its benefits are sought by the taxpayer, the
function of the doctrine is to allow the taxpayer to
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