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As a general rule, the party claiming the benefit of an
equitable recoupment defense must establish that it applies. See
Estate of Mueller v. Commissioner, supra at 556. In order to
establish that equitable recoupment applies, a party must prove
the following elements: (1) The overpayment or deficiency for
which recoupment is sought by way of offset is barred by an
expired period of limitation; (2) the time-barred overpayment or
deficiency arose out of the same transaction, item, or taxable
event as the overpayment or deficiency before the Court; (3) the
transaction, item, or taxable event has been inconsistently
subjected to two taxes; and (4) if the transaction, item, or
taxable event involves two or more taxpayers, there is sufficient
identity of interest between the taxpayers subject to the two
taxes that the taxpayers should be treated as one. United States
v. Dalm, supra at 604-605; Estate of Branson v. Commissioner, 113
T.C. 6, 15 (1999), affd. 264 F.3d 904 (9th Cir. 2001); Estate of
Orenstein v. Commissioner, supra.
B. Tax Court Jurisdiction To Apply Equitable Recoupment
We addressed the question of our authority to consider a
claim of equitable recoupment in Mueller II. In that case, we
held that our authority to apply equitable recoupment was
inherent in the jurisdiction conferred on us by statute to
redetermine a tax deficiency. Estate of Mueller v. Commissioner,
supra at 556. We concluded that exercising jurisdiction over the
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