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of excise taxes paid could not be obtained for the earlier years
1919 through 1921 because those years were already time-barred.
The Commissioner then determined that the excise tax refund for
the years 1922 through 1926 should be included in the taxpayer's
gross income in 1935, the year of receipt. The taxpayer paid
under protest and brought a refund suit, arguing that the refund
was not taxable income and, in the alternative, that the income
tax should be reduced by equitable recoupment on account of the
time-barred overpaid excise taxes for the earlier years 1919
through 1921 for which it had been denied a refund. In District
Court, the taxpayer lost on the income inclusion issue, but won
on the recoupment issue. Electric Storage Battery Co. v.
Rothensies, 57 F. Supp. 731 (E.D. Pa. 1944). The Court of
Appeals for the Third Circuit affirmed, holding that the
interpretation of “transaction” should be informed by the
"concepts of fairness" basic to the doctrine of recoupment, so
that all the doctrine required was a "logical connection" between
the main claim and the recoupment claim. Electric Storage
Battery Co. v. Rothensies, 152 F.2d 521, 524 (3d Cir. 1945). In
reversing on the equitable recoupment issue, the Supreme Court
rejected the Third Circuit’s reasoning. The Supreme Court
insisted that the equitable recoupment doctrine required that a
single transaction constitute both the taxable event claimed upon
and the one considered in recoupment and held that the single
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