- 24 -
In 1980, the Tax Court entered a stipulated decision in the
estate tax case, setting the value of the stock at $280.10 per
share. The taxpayer did not assert the equitable recoupment
claim in the Tax Court case.
On April 8, 1981, the taxpayer filed a claim for refund for
the income taxes that he overpaid in 1975 because of his use of
the lower value as the stock's basis. The claim for refund was
denied on the grounds that the period of limitations had run for
the 1975 taxable year. The taxpayer then filed suit for refund
in District Court, arguing that the basis for the stock should
have been higher and using equitable recoupment as the ground for
the suit.13
The District Court agreed, finding the single-transaction
requirement satisfied. Like the Court of Appeals for the Third
Circuit in Boyle, the District Court in O'Brien relied upon Bull,
and found that the facts of O'Brien were closer to Bull than to
Rothensies v. Electric Storage Battery Co. The Court of Appeals
for the Seventh Circuit reversed, on the ground that equitable
recoupment cannot be used offensively as an independent ground
13The taxpayer also argued for the refund under secs. 1311-
1314, the statutory mitigation provisions. The District Court
accepted this argument, but the Court of Appeals for the Seventh
Circuit reversed this conclusion. See O'Brien v. United States,
582 F. Supp. 203, 206-207 (C.D. Ill. 1984), revd. 766 F.2d 1038
(7th Cir. 1985).
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