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The Court also concluded that S was liable for an
income tax deficiency to the extent MI’s payment of
certain expenses was unreasonable in amount and
constituted a constructive dividend to S and S
constructively received interest income on loans he
made to MI.
R filed computations for entry of decision
pursuant to Rule 155, Tax Court Rules of Practice and
Procedure. S and MI objected to R’s computations
because they did not reflect an offset against their
income tax deficiencies equal to the amount of hospital
taxes that S and MI overpaid under secs. 3101(b) and
3111(b), I.R.C., in respect of the portion of S’s
compensation that the Court recharacterized as a
disguised dividend.
After the submission of the computations and
related objections, Congress passed the Pension
Protection Act of 2006 (PPA), Pub. L. 109-280, sec.
858, 120 Stat. 1020, which amended sec. 6214(b),
I.R.C., to provide that the Tax Court may apply the
doctrine of equitable recoupment, effective for any
action or proceeding in the Court with respect to which
a decision has not become final as of Aug. 17, 2006.
Sec. 6214(b), I.R.C., as amended by PPA sec. 858,
provides that the Court has jurisdiction to apply the
doctrine of equitable recoupment to the same extent
that the doctrine is available in civil tax cases
before the District Courts of the United States and the
U.S. Court of Federal Claims.
Held: Where, as here, the Court has original
jurisdiction to redetermine a deficiency pursuant to
sec. 6213(a), I.R.C., the Court may apply the equitable
recoupment doctrine even if the Court lacks subject
matter jurisdiction over the type of tax to which the
equitable recoupment claim is directed.
Held, further: The requirements for establishing
a claim of equitable recoupment are satisfied in this
case, and S and MI are entitled to an offset against
their income tax deficiencies equal to the hospital
taxes that S and MI paid on the portion of S’s
compensation that the Court recharacterized as a
disguised dividend.
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