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In the tax area, where the taxpayer in a refund suit or a
proceeding in this Court is put in the position of the
"plaintiff", the Supreme Court has applied the general doctrine
of recoupment, in the specific form of equitable recoupment, in
Bull v. United States, 295 U.S. 247 (1935). See also United
States v. Dalm, supra at 605-606 n.5; Rothensies v. Electric
Storage Battery Co., 329 U.S. 296 (1946); Stone v. White, 301
U.S. 532 (1937). Under the equitable recoupment doctrine,
taxpayers in Federal tax proceedings may raise recoupment as an
affirmative defense, rather than as a counterclaim. United
States v. Dalm, supra at 607; Commissioner v. Gooch Milling &
Elevator Co., 320 U.S. 418, 420-421 (1943); Mueller II, 101 T.C.
at 560. The Government is also entitled to raise this defense,
Stone v. White, supra, so that either side may assert it, in
certain limited circumstances, to remove the bar of the expired
statutory limitation period in order to prevent inequitable
windfalls to either taxpayers or the Government. Those limited
circumstances are that otherwise such a windfall would result
from inconsistent tax treatment of a single transaction, item,
or event affecting the same taxpayer or a sufficiently related
taxpayer. United States v. Dalm, supra at 605-606 n.5.
Equitable recoupment thus requires, and I address in turn:
(1) That the refund or deficiency for which recoupment is sought
by way of offset be barred by time; (2) that the time-barred
offset arise out of the same transaction, item, or taxable event
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