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proposition that there should be no adjustment to the deduction
for hospital tax that it claimed in 1998, Menards fails to
elaborate on what it considers the “year of receipt” for purpose
of including the “refund” in its income. Menards cites no case
in which the above-referenced regulation was applied in respect
of a claim for equitable recoupment, and we are not aware of any
such precedent.
We conclude that section 1.461-2, Income Tax Regs., is not
dispositive in the particular circumstances of this case, and we
shall adopt respondent’s approach for purposes of completing the
computations in this matter. The effect of our holding
sustaining Menards’s equitable recoupment claim is that Menards
will enjoy the benefit of an otherwise time-barred overpayment
credit in the taxable year 1998. Considering that such relief is
available to Menards only by way of the application of an
equitable principle, we believe that all matters related to the
overpayment credit, including the proper treatment of the
previously claimed hospital tax deduction, should be resolved in
a final decision for the taxable year 1998. In short, the
parties will be directed to provide the Court with correct
computations in accordance with respondent’s position as
described above.
We have considered the remaining arguments of both parties
for results contrary to those expressed herein and, to the extent
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