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had already been paid, and the statute of limitations barred any
refund of the estate tax.
While no refund action could be brought for recovery of the
estate tax, the Supreme Court recognized that if the taxpayer had
been defending against a lawsuit by the Government for the
additional income tax, the taxpayer would have been permitted, by
the doctrine of recoupment,9 to raise time-barred claims arising
out of the same transaction as a defense to the Government's
suit. But the taxpayer had filed the refund suit and was the
plaintiff. The Government had already collected the disputed
income tax and was seeking no further relief against which the
taxpayer had to defend. The Supreme Court, nevertheless,
recognized that it was the Government that had initiated the
controversy by making its income tax deficiency determination and
that the taxpayer, although technically the plaintiff, was, in
reality, defending against the Government's determination.10 The
Supreme Court therefore fashioned the doctrine of equitable
recoupment to allow the taxpayer to defend against the
9Recoupment has been described as "the setting off against
asserted liability of a counterclaim arising out of the same
transaction. Recoupment claims are generally not barred by a
statute of limitations so long as the main action is timely."
Reiter v. Cooper, 507 U.S. at 264.
10See United States v. Dalm, 494 U.S. at 605, stating that
in Bull v. United States, supra, "the proceeding between the
executor and the Government was in substance an attempt by the
Government to recover a debt from the estate."
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