- 16 - Use of equitable recoupment is limited to defending against a valid claim. It allows an otherwise time-barred tax claim arising out of the same transaction to be used as a defense or credit against any additional tax ultimately found to exist in the main action.15 If all or part of the Government's claim for additional tax is sustained, equitable recoupment can be used to reduce or eliminate it. However, once equitable recoupment of the time-barred tax overpayment completely eliminates the additional tax liability in the main action, equitable recoupment has served its restricted defensive purpose.16 Equitable recoupment cannot be used affirmatively to recover a tax overpayment, the refund of which is barred by the statute of limitations. Where the Government claims that the taxpayer owes additional tax and the court finds that there is no additional tax due to the Government, there is nothing left to defend against.17 The additional estate tax liability that would have 15See United States v. Dalm, 494 U.S. at 605. 16See United States v. Timber Access Indus. Co., 54 F.R.D. 36 (D. Or. 1971). The defendant was entitled to an affirmative recovery against the Government on a separate counterclaim; however, recoupment against the Government was restricted to the amount that the Government was entitled to recover in the main cause of action initiated by the Government. 17See Evans Trust v. United States, 199 Ct. Cl. 98, 106, 462 F.2d 521, 526 (1972), stating: (continued...)Page: Previous 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Next
Last modified: May 25, 2011