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for a tax debt, and there is no liability against which equitable
recoupment can be used to defend.13
In Stone v. White, 301 U.S. 532 (1937), the Supreme Court
allowed the Government to use equitable recoupment to defend
against an income tax refund suit brought by a trustee. The
Court ultimately held that the trustee had overpaid income tax
and that the income in issue should have been taxed to the
trust's beneficiary. However, the statute of limitations barred
assessment against the beneficiary. The tax on the beneficiary
would have exceeded the amount of tax paid by the trust. The
Government raised the equitable recoupment defense. The trust
argued that the statute of limitations barred assessment against
the beneficiary and that the beneficiary's tax should not be
considered. The Supreme Court allowed the equitable recoupment
defense, stating:
13Equitable recoupment has been restricted to defending
against an otherwise valid claim or cause of action. The
Government's claim or cause of action here is its assertion that
petitioner is liable for additional estate tax. "In federal tax
litigation one's total income tax liability for each taxable year
constitutes a single, unified cause of action, regardless of the
variety of contested issues and points that may bear on the final
computation." Finley v. United States, 612 F.2d 166, 170 (5th
Cir. 1980)(citing Commissioner v. Sunnen, 333 U.S. 591, 598
(1948)). The same reasoning applies to the estate tax. There is
no distinction conceptually between the nature of a cause of
action arising from estate taxes on the one hand and one arising
from a single year's income tax on the other. Estate of Hunt v.
United States, 309 F.2d 146, 148 (5th Cir. 1962); see also
Huddleston v. Commissioner, 100 T.C. 17, 25 (1993).
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