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inconsistent tax treatment of a single transaction, item, or
event. We assume that if the roles were reversed and petitioners
had filed timely refund suits in Federal District Court alleging
that they overpaid their hospital tax, respondent would assert
equitable recoupment and seek to offset some or all of the
claimed refunds by the amount of any income tax petitioners might
owe in connection with the same transaction. Just as a Federal
District Court may apply the doctrine of equitable recoupment in
favor of the Commissioner in the scenario described above,
fundamental fairness suggests that this Court likewise may apply
the doctrine in favor of petitioners under the facts presented in
the instant case. Otherwise, respondent will enjoy an
inequitable windfall due to the inconsistent tax treatment of a
single transaction under two different internal revenue taxes.
As a final matter, we reject respondent’s argument that we
are allowing petitioners to use the doctrine of equitable
recoupment to expand our jurisdiction and introduce hospital tax
into the case “through the back door”. We have consistently held
that “‘While we cannot expand our jurisdiction through equitable
principles, we can apply equitable principles in the disposition
of cases that come within our jurisdiction.’” Woods v.
Commissioner, 92 T.C. 776, 784-785 (1989) (quoting Berkery v.
Commissioner, 90 T.C. 259, 270 (1988) (Hamblen, J., concurring));
see also Estate of Branson v. Commissioner, 113 T.C. at 12;
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