# UNITED STATES TAX COURT > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/agency%3Atax-court%3Ac3e02a0def6a2396 ## Record - **Collection:** Agency decision - **Document type:** Agency decision ## Text 113 T.C. No. 2 UNITED STATES TAX COURT ESTATE OF FRANK A. BRANSON, DECEASED, MARY M. MARCH, EXECUTOR, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket No. 10028-95. Filed July 13, 1999. P reported the date-of-death fair market values of the stock of S and W as $181.50 and $485, respectively, per share. P sold some of the S stock for $335 per share and all the W stock for $850 per share. The gain realized on the sales by P was distributed to the residuary legatee, M, who reported the gain on her Federal income tax return and paid the income tax due. R determined a deficiency in P's estate tax liability. R's determination was based on his assertion that at the date of death the fair market values of the S and W shares were $300 and $850, respectively, per share. In Estate of Branson v. Commissioner, T.C. Memo. 1999-231, we found that·the date-of-death fair market values of the S and W shares were $276 and $626, respectively. P asserts that it is entitled to equitable recoupment of the income tax overpaid by M, the refund of which is barred by the statute of limitations. Held, under the doctrine of equitable recoupment, P is entitled to a credit for the income tax overpaid by M on the ups rJUL 1 3 1999 059 - 2 gain recognized on the sales of the shares due to the lower valuas reported on the estate tax return. Estate of Bartels v. Commissioner, 106 T.C. 430 (1996); Estate of Mueller v. Conmissioner, 101 T.C. 551 (1993), followed. Rotect A. Mills, Marco L. Quazzo, and Mary Catherine Wirth, for petitioner. Rete:ca T. Hill, Bryce A. Kranzthor, and Elizabeth Groenewegan, for respondent. OPINION PAFR, Judge: ' In Estate of Branson v. Commissioner, T.C. Memo. 1 93-231 (Branson I), we redetermined the increased value of the shares of Savings Bank of Mendocino County (Savings) and Bank of WLllits (Willits) included in decedent's gross estate. We now co1sider whether this Court has authority to apply equitable recoupment in light of the opinion of the Court of Appeals far the Sixth Circuit in Estate of Mueller v. Commissioner, 153 F.3d 302 (6th Cir. 1998), affg. on other grounds 137 T.C. 189 (1996), and if so, whether petitioner is entitlec ander that doctrine to credit for the taxes paid by the residuary legatee on the excessive gain recognized from the sales of the shares due to the lower values provided by thh estate tax return. Following our opinions in Estate of Bartels v. Commissioner, 106 T.C. 430 (1996), and Estate of Mueller v. Commissjoner, 101 T.C. 551 (1993), we hold that this Court has - 3 authority to apply equitable recoupment. We further hold that petitioner is entitled to recoup the residuary legatee's excessive payment of income tax against the estate tax deficiency. The relevant facts are taken from our findings in Branson I, the parties' submissions, and the existing record. Petitioner is the estate of Frank A. Branson (decedent), who died testate on November 9,,)1991, in Mendocino, California. Mary March (March), decedent's daughter, is the executrix and residuary legatee of the estate. March's legal address was Potter Valley, California, at the time the petition in this case was filed. Uñless otherwise indicated, all section references are to the Internal Revenue Code in effect as of the date of decedent's death, and all Rule references are to the Tax Court Rules of Practice and Procedure. All dollar amounts are rounded to the nearest dollar, unless otherwise indicated. Background At the time of his death, decedent owned 12,889 shares of Savings stock and 500 shares of Willits stock. Petitioner reported the value of the Savings and Willits shares as $181.50 and $485, respectively, per share, on its Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. Decedent's will provided that all estate taxes were to be paid from the residue of the estate. Pursuant to a court order, 4 - 4 March, ne executrix, was granted authority to sell 2,800 shares of Savincs stock at $335 per share and 500 shares of Willits stock at $850 per share. March sold the shares in 1992 and paid Federal and State of California estate taxes of $1,008,698 and $200,63;:, respectively. legatee, March, as executrix and residuary assumed individual liability for any estate taxes later found due from petitioner. Petitigner reported the capital gain from the sales of the Savings and Willits shares on Schedule D of its 1992 Form 1041, U.S. Fidtciary Income Tax Return, which it filed on or about April 15, 1993. Petitioner calculated the gain by subtracting the value of the shares reported on the estate tax return from the amourt received from their sale. Petitioner reported $429,800 of gain from the sale of the Savings shares and $182,500 from the sale of the Willits shares.¹ Petitioner, however, did not pay any income tax on these gains; instead, it reported a net long-tern capital gain distribution of $610,274 to March on Schedulo K-1, Beneficiary's Share of Income, Deductions, Credits, Etc., which it attached to the Form 1041. Ma ch and her husband, Charles March, filed their 1992 Form 1040, U E. Individual Income Tax Return, using the status of ¹PetLtioner also reported $6,955 of long-term capital gain from the sale of 2,000 shares of PG&E stock and a $738 net longterm capital loss carryover from 1991. The value of the PG&E shares and the loss carryover are not at issue in this case. - 5 "Married filing joint return", on or about April 15, 1993, and paid the tax due. March reported the $610,274 gain on line 13 of Schedule D, which was attached to the Form 1040, as "Net longterm gain or (loss) from partnerships, S corporations, and fiduciaries". Respondent determined a deficiency in petitioner's estate tax liability on the grounds that the fair market values of the Savings ang Willits on the date of death were $300 and $850, respectively, per share. In Branson I, we found that the date- of-death fair market values of the Savings and Willits shares were $276 and $626, respectively. Petitioner asserts that it is entitled to equitable recoupment of the income tax overpaid by March, the refund of which is barred by the statute of limitations, in determining the amount of its Federal estate tax liability. . Discussion Relying upon Estate of Mueller v. Commissioner, 153 F.3d 302 (6th Cir. 1998), respondent asserts that this Court lacks jurisdiction to consider petitioner's claim for equitable recoupment. (1993) In Estate of Mueller v. Commissioner, 101 T.C. 551 (Mueller II), we opined that we have jurisdiction to consider claims of equitable recoupment. Commissioner, 107 T.C. 189 (1996) In Estate of Mueller v. (Mueller III), we held that equitable recoupment is restricted to use as a defense against an I - 6 otherwis e valid claim. As a result of our valuation of the stock includalle in Mueller's estate, see Estate of Mueller v. Commissjoner, T.C. Memo. 1992-284, and the taxpayer's failure to claim a large previously taxed property credit on its Federal estate tax return, it became apparent that there was no deficier cy in estate tax; rather, the taxpayer was entitled to recover an overpayment of estate tax, regardless of equitable recoupme nt Inasmuch as application of equitable recoupment under tlese circumstances would have increased the amount the taxpayer was entitled to recover as an overpayment, rather than reduce i deficiency, we held that equitable recoupment was not availabJe. The taxpayer appealed. The Court of Appeals for the Sixth Cjrcuit affirmed Mueller III, on the ground that this Court lacked - urisdiction to consider the affirmative defense of equitabJe recoupment. See Estate of Mueller v. Commissioner, 9 supra. The Court of Appeals for the Sixth Circuit inte-rpreted section 6214(b) and 6512(b) together to explicitly confer on the Tax Court jurisdiction to do no more than determine the amount of the deficiency be5 cre it. The Tax Court's jurisdiction cannot extend beycnd its statutory confines to encompass an equitable rertedy such as recoupment because the Tax Court "is a court of limited jurisdiction and lacks general equitable powers," and because "[t]he Tax Court and its divisions shall have such jurisdiction as is conferred on cn them by [Title 26]." * * * [Estate of Mueller v. Cornissioner, 153 F.3d at 305; citations omitted.] i . - 7 - The Court of Appeals further relied upon Commissioner v. Gooch Milling & Elevator Co., 320 U.S. 418 (1943), and several cases decided in Federal courts which have cited Gooch Milling,2 for the proposition that this Court does not have jurisdiction to consider the affirmative defense of equitable recoupment. The jurisdictional status of equitable recoupment in this Court has had a long history, which we reviewed with painstaking care in Estate of Bartels v. Commissioner, 106 T.C. 430 (1996) and in Mueller II. We do not here reiterate that history, except to distinguish our position from that of the Court of Appeals for the Sixth Circuit. In Mueller II, we interpreted Commissioner v. Gooch Milling & Elevator Co., supra, as presenting the question whether the Board of Tax Appeals had authority to apply the doctrine of equitable recoupment in income tax cases. We concluded that Gooch Milling does not prevent this Court from "considering the affirmative defense of equitable recoupment when it is properly raised in a timely suit for redetermination of a tax deficiency over which we have jurisdiction." See Mueller II, 101 T.C. at 560. 2See Rothensies v. Electric Storage Battery Co., 329 U.S. 296, 303 (1946); Elbert v. Johnson, 164 F.2d 421, 424 (2d Cir. 1947); Mohawk Petroleum Co. v. Commissioner, 148 F.2d 957, 959 (9th Cir. 1945), affg. 47 B.T.A. 952 (1942); Estate of Van Winkle v. Commissioner, 51 T.C. 994, 999 (1969); Wiener Mach. Co. v. Commissioner, 16 T.C. 48, 54 (1951). In its opinion, the Court of Appeals for the Sixth Circuit did not consider the difference between the Board of Tax Appeals and the Tax Court. At.the time the Board of Tax Appeals decided the isste of whether it could consider equitable recoupment in Gooch Milling & Elevator Co., the Board was an independent agency in the Exacutive Branch of the Government. See sec. 900(k) of the Revenle Act of 1924, ch. 234, 43 Stat. 253, 338. As a result of the Ta for any taxable year or of gift tax for any caJendar year or calendar quarter shall consider such facts with relation to the taxes for other years or ca3endar quarters as may be necessary correctly to recetermine the amount of such deficiency, but in so doing shall have no jurisdiction to determine whether or not the tax for any other year or calendar quarter hat aeen overpaid or underpaid. 6See infra pp.17-18. - 11 redetermine the amount of the estate tax deficiency now before us.' In Estate of Bartels v. Commissioner, supra at 435-436, we stated: what is involved herein is a question of our authority and not a question of our jurisdiction since we already have jurisdiction by virtue of the income tax deficiency notice and the timely petition filed in response thereto. Thus, the cases articulating a principle that the jurisdiction of this Court is limited to that conferred upon it by Congress repres,ented by Commissioner v. Gooch Milling & Elevator Co , supra, and its progeny, have no application. * * * [Citation omitted.] Therefore, "'While we cannot expand our jurisdiction through equitable principles, we can apply equitable principles in the disposition of cases that come within our jurisdiction.'" See Woods v. Commissioner, supra at 784-785 (quoting Berkery v. Commissioner, 90 T.C. 259, 270 (1988) (Hamblen, J., concurring)). In this case, respondent accepted petitioner's and March's income tax returns, which reported gain calculated by using the fair market values of the shares reported on the estate tax return. Respondent asserted a higher date-of-death fair market value for those same shares for estate tax purposes, determined a deficiency in petitioner's estate tax, and issued a statutory notice of deficiency. In response, petitioner filed its timely 7Furthermore, sec. 6214(b) specifically applies only to income and gift taxes, and makes no mention of estate tax. See Estate of Mueller v. Commissioner, 101 T.C. 551, 560 (1993). - 12 petition with this Court. There is no doubt that we have jurisdiction of this case. We may therefore exercise full judicia.. power in its disposition. Court o: Appeals for the Ninth Circuit Any appeal in this case lies to the Court of Appeals for the Ninth C..Icuit, and we are bound by any decision of that court squarely in point. 757 See Golsen v. Commissioner, 54 T.C. 742, 756- (19'C)5 ,affd. 445 F.2d 985 (10th Cir. 1971). Respondent asserts that this issue was settled in the Ninth Circuit by Mohawk Petroleum Co. v. Commissioner, 148 F.2d 957, 959 (9th Cir. 1945), affg. 47 B.T.A. 952 (1942). In Fohawk Petroleum Co. v. Commissioner, supra, the Court of Appeals relied on Gooch Milling & Elevator Co. for its decision that the Board of Tax Appeals lacked jurisdiction to consider equitab.E recoupment of income taxes. See id at 959. Because we have found that Gooch Millina & Elevator Co. is not on point, it follov s that Mohawk Petroleum Co. is not dispositive. Accordilicly, we disagree with respondent's assertion. In Fueller II, we found additional support for our decision in sect.cns 7422(e), 6512(a), and 7481. at 557. See Mueller II, 101 T.C. Considered together, these sections indicate that "Congrene intended the Tax Court to have full judicial authority to reso. e issues over which it has jurisdiction". Woods v. - 13 Commissioner, 92 T.C. at 788. Judge Halpern further observed that the Code is structured to channel tax litigation to the Tax Court. We are the tax forum of choice, because only here can the tax liability be litigated prior to payment. Understandably, we preside over the vast majority of tax litigation. * * * [Mueller II, 101 T.C. at 564 (Halpern, J., concurring); citations omitted.] If this Court lacked authority to consider equitable recoupment,,,a taxpayer without the practical ability to prepay the contested deficiency and sue for refund in a different forum would be precluded from raising a defense available to a more affluent taxpayer who has the means to do so. that Congress intended this result. We do not believe Accordingly, we shall continue to follow our opinions in Estate of Bartels v. Commissioner, 106 T.C. 430 (1996), and Mueller II, supra. Defensive Use We held in Mueller III that equitable recoupment is restricted to use as a defense against an otherwise valid claim for a deficiency, and not to increase an overpayment of tax. also United States v. Dalm, 494 U.S. at 608 See (tax refund courts are without jurisdiction to consider time-barred refund claims based solely upon equitable recoupment). We have found that petitioner underreported the values of the Savings and Willits shares on its estate tax return. Accordingly, petitioner has a deficiency in estate tax, and is, therefore, properly positioned - 14 to invo æ the doctrine of equitable recoupment to reduce that deficiency by the amount of the income tax overpaid because of its use cf the same underreported value as the basis of the shares. Legatee bot Dilicent Re-gondent argues that equitable recoupment should not be permittoc in this case because March was not diligent in seeking a refund of,the income tax paid on the gain passed through to her as residtal legatee. The estate tax notice of deficiency was issued or March 16, 1995, and the limitations period did not expire or March's income tax refund until April 15, 1996. March thus had more than a year within which to file a protective claim for refir d. In a ddressing this issue in United States v. Bowcut, 287 F.2d 651, 657 Circuit (9th Cir. 1961), the Court of Appeals for the Ninth citing Bull v. United States, 295 U.S. 247 (1935), stated: It is apparently not the diligence of the taxpayer as to 1.is legal rights which controls, but rather the in u(uity of holding that, while the government's rights un der a transaction continue unimpaired, its adforsary's rights thereunder are barred by lin:tations. Accordingly, we do not consider March's lack of diligence to be a fa ctor in deciding whether petitioner is entitled to claim equitab Le recoupment. - 15 Requirements of Equitable Recoupment In a recent case, the Supreme Court reaffirmed that a party litigating a tax claim in a timely proceeding may, in that proceeding, seek recoupment of a related, and inconsistent, but now time-barred tax claim relating to the same transaction. United States v. Dalm, supra at 608 States, 295 U.S. 247 See (interpreting Bull v. United (1935), and Stone v. White, 301 U.S. 532 (1937)). A claim of.equitable recoupment requires: (1) That the refund or deficiency for which recoupment is sought by way of offset be barred by time; (2) that the time-barred offset arise out of the same transaction, item, or taxable event as the overpayment or deficiency before the Court; (3) that the transaction, item, or taxable event have been inconsistently subjected to two taxes; and (4) that if the subject transaction, item, or taxable event involves two or more taxpayers, there be sufficient identity of interest between the taxpayers subject to the two taxes so that the taxpayers should be treated as one. See United States v. Dalm, supra at 604-605 & n.5; Coohey v. United States, 172 F.3d 1060 (8th Cir. 1999); Parker v. United States, 110 F.3d 678, 682-683 (9th Cir. 1997). Each of these requirements is met in the instant case. - 16 1. Refurd Time-Barred March filed her 1992 Federal income tax return on or about April lf, 1993, and payment was made on the same date that the return vas filed. March has never filed a claim for refund; therefore, a claim for refund is barred by section 6511(a). 2. Sincla Transaction, Item, or Taxable Event Sirca Bull v. United States, supra, the Supreme Court has emphasized 3that a claim of equitable recoupment will lie only where tre Government has taxed a single transaction, item, or taxable e7ent under two inconsistent theories. v. Dalm, See United States 194 U.S. at 608 n.5 (construing Rothensies v. Electric Storage Battery Co., 329 U.S. 296, 299-300 (1946), Bull v. United States, gara, and Stone v. White, supra). transaction", The terms "single "item", or "event" are not synonymous, and the inclusion of "item" in this phrase is significant in our case. In 3nll v. United States, supra, Archibald Bull (Bull) died owning a partnership interest, including the right to receive future pcofits. The partnership interest was transferred to his estate, and, later his estate received the sum of approximately $212,000 constituting its share of partnership profits earned subseque n to Bull's death. In 1921, the executor, at the Commissin.er's insistence, erroneously included this sum in the gross es :¿ te under the theory that it was estate corpus, and thus, it vas subjected to estate taxes. In 1925, the Government - 17 determined a deficiency in the estate's income tax on the correct theory that the same sum was income to the estate. paid the income tax in 1928. The executor Later, in that same year, the executor filed a claim for refund for the income tax paid and sued for refund after the claim was denied. In considering the issue before it, the SupremeCourt stated: A serious and difficult issue is raised by the claim that the same receipt has been made on the basis of both income and estate tax, although the item cannot in the circumstances be both income and corpus; and that the alternative prayer of the petition required the court to render a judgment which would redress the illegality and injustice resulting from the erroneous inclusion of the sum in the gross estate for estate tax. * * * [Bull v. United States, 295 U.S. at 255; emphasis added.] The Supreme Court found that the estate's receipt of the sum was properly taxable as income to the estate and that under the facts of the case, of the estate." "the item could not be both corpus and income See Bull v. United States, supra at 258. Thus, the Supreme Court viewed the sum of money owed to Bull's estate as an item. See id_ at 255. We have no reason to believe that the same sum may be defined as an item for income tax purposes but be defined as something other than an item when included in corpus for purposes of calculating the estate tax. See id. at 256. In the case at hand, the same item (in terms of - 18 share v C.ue)³ was included in both petitioner's corpus in determi:ling the value of the gross estate and in income.9 Therefo , the estate tax and the income tax were imposed on the same iton.. Fucthermore, under the facts of the case before us, this item cantot properly be both corpus and income to the estate. The incone tax paid by the residuary legatee on that identical item is noney which the Government is not justly entitled to retain. See id. at 261 ("While here the money was taken through mistake vithout any element of fraud, the unjust retention is immoral and amounts in law to a fraud on the taxpayer's rights.'). In hclding that equitable recoupment was available for the taxpayen to credit the estate tax paid on the same item subjected ePe tioner reported the date-of-death fair market value of the Say ngs shares at $181.50 per share and used that amount as the bas s in calculating the gain on the shares later sold. We have de ermined that the date-of-death fair market value of each Savings share is $276. Thus, $94.50 ($276 minus $181.50) of share v lue for each share of Savings stock was included in both corpus and income. Similarly, $141 ($626 minus $485) of share value for each share of Willits stock was included in both corpus and income. 9Pet tioner sold the shares and calculated the amount of income (9th Cir. 1961), affg. 175 F. Supp. 218 (D. In this case, the decedent died in 1952, and the (decedent's former wife) filed the estate tax return in 1953, paying the tax due. In 1954, the Government proposed adjustmorts to decedent's income tax for 1947 through 1950 for additionél income tax, civil fraud penalties, and interest. The executr..> paid the taxes, penalties, and interest in installnents, and filed suit in District Court for refund of income ½¿x in the amount of the overpaid estate taxes on the grounds c f equitable recoupment. In the District Court, the Government argued, inter alia, that equjtable recoupment was not appropriate under Bull v. - 31 United States, supra, because the single-transaction requirement was not satisfied. The District Court, relying upon United States v. Herring, supra, dismissed that argument because the same money was involved in both the claim for the income tax deficiency and the claim for estate tax. See Bowcut v. United States, 175 F. Supp. at 222. On affirming the District Court, the Court of Appeals for • the Ninth Circuit did not consider the single-transaction issue, as the Government appealed primarily on other grounds, which the court rejected, for denying equitable recoupment. See United States v. Bowcut, 287 F.2d at 656-657 & n.1 (9th Cir. 1961). Although the Court of Appeals did not consider whether the single-transaction requirement was satisfied, it did note that "In this case the taxpayer emphasizes that she is seeking to recover the overassessment of estate tax by recoupment from the very fund which, taken from the estate, had brought about the fact of overassessment." Id. at 656. Years after United States v. Herring, supra, and United States v. Bowcut, supra, were decided, the Commissioner accepted the logic of these decisions and agreed in Rev. Rul. 71-56, 19711 C.B. 404, to apply equitable recoupment in these circumstances.¹6 Despite the statement of administrative ¹6Rev. Rul. 71-56, 1971-1 C.B. 404, 470, revoked Rev. Rul. 55-226, 1955-1 C.B. 469, which ruled, citing Rothensies v. (continued...) - 32 - . positiol in Rev. Rul. 71-56, supra, respondent now argues that the sin pe-transaction requirement is not met in the case at hand. En support of his position, respondent cites two Court of Claims mses, Wilmington Trust Co. v. United States, 221 Ct. C1. 686, 61) F.2d 703 (1979), and Ford v. United States, 149 Ct. Cl. 558, 275 F.2d 17 (1960). In Uilmington Trust Co. v. United States, supra, the Governmant,argued equitable recoupment in a factual context similar to United States v. Herring, supra, and United States v. Bowcut, supra." In this consolidated case, individual taxpayern, Carpenter and McMullan, had been engaged in forest and land management. Carpenter and McMullan incurred certain expenses in these activities which they properly deducted as ordinary and necessary business expenses. After Carpenter and McMullan had died, the Government determined deficiencies in their prbdeath income taxes, on the theory that the expenses were reductio:1s in the amount of capital gain that Carpenter and McMullan each had realized on sales of timber. The executor of each decadent's estate paid the income tax deficiencies and deducted the income taxes paid as claims against the decedent's " ...continued) Electric Storage Battery Co., 329 U.S. 296 (1946), that equitable recoupnent was not available in these circumstances because the single-transaction requirement was not satisfied. "See Andrews, supra at 641. - 33 gross estate. . Each estate was allowed these deductions for estate tax purposes. Each estate also timely filed an administrative claim for refund of the predeath income taxes it had paid; the claims were denied, and each of the executors filed suit for refund of income tax in the Court of Claims. If allowed, the refunds of the improperly paid income taxes would have resulted in estate tax deficienciçs, as the earlier deductions allowed for the income tax claims against the estates would have been overstated. After the period of limitations had expired for the Government to assert contingent claims against the estates, the Government amended its answer in the refund suits seeking under the doctrine of equitable recoupment to offset any resulting estate tax deficiencies against any income tax refunds the court determined to be due. In both cases, the trial court judges, citing Herring v. United States, supra, Bowcut v. United States, supra, and Rev. Rul. 71-56, supra, found the single-transaction requirement had been satisfied, and recommended decision for the Government. See Wilmington Trust Co. v. United States, 43 AFTR 2d 79-801, 79-1 USTC par. 9223 (Ct. Cl. Trial Div. 1979), revd. and remanded 221 Ct. Cl. 686, 610 F.2d 703 (1979); McMullan v. United States, 42 AFTR 2d 78-5723, 78-2 USTC par. 9656 (Ct. Cl. Trial Div. 1978). - 34 - The Court of Claims reversed the trial court and held for the taxpayers, stating that it was obliged by Rothensies v. Electric Storage Battery Co., 329 U.S. 296 (1946), to give the single-t ansaction requirement a narrow, inflexible interpre ation. Ct. C1. See Wilminoton Trust Co. v. United States, 221 586, 610 F.2d 703, 713 (1979). In finding that the single-transaction requirement was not satisfied, the court stated: The income tax refund is based upon the ded 2ctibility from ordinary income of the timber operations expense. The estate tax deficiency, hcw aver, exists because the estate deducted the acdLtional income taxes reflecting those expenses that it Jaid and now is recovering. The recoupment.claim thus arises from a different transaction (the reduced dedaction from the estate tax) than the refund claims (tha increased deductions from ordinary income). The gcvarnment is not seeking to offset against each other two taxes levied on the same transaction, but to offset the tax on one transaction against the tax on another. * * * [Id. at 714.] Trus, although the precipitating transaction was the deduction of the business expenses, the Court of Cla·ims did not find tris sufficient.¹ª Ir 1939, the taxpayers (children) in Ford v. United States, 149 Ct. 21. 558, 276 F.2d 17 (1960), received stock in a closely ¹ehcademic commentators have almost invariably supported the Herrint-Bowcut analysis over the conclusion of the Court of Claims. See Andrews, supra at 630-650; Willis, "Some Limits of Equitable Recoupment, Tax Mitigation, and Res Judicata: Reflections Prompted by Chertkof v. United States", 38 Tax Law. 625, 6e 2-645 (1985). - 35 held Brazilian coffee company from their deceased father's estate. For estate tax purposes, the executors reported the date-of-death fair market value of the stock at $11,857, which was adjusted upward to $23,715 in an audit of the estate tax return. Eight years later, in 1947, the children sold the stock for $258,948, and reported gain based upon the adjusted date-of. death value of the stock. The children then filed a timely claim for refund5,asserting that the basis reported on the income tax returns was.erroneous, and that the correct date-of-death value, and, therefore correct basis, was $331,418. See id at 20. The Government denied the refunds, on the basis of the dateof-death value reported in the estate tax return. The children filed suit in the Court of Claims, and at trial the court found that the actual fair market value of the stock at the date of the father's death was greater than the amount the children received in the 1947 sale. The Government did not advert that it might be entitled under the doctrine of equitable recoupment to offset the overpaid income tax against the earlier underpaid estate tax. However, on its own initiative the Court of Claims considered this issue, and on a 3-2 vote, held that the Government was not entitled to recoupment because the facts were not identical to those in Bull v. United States, 295 U.S. 247 White, 301 U.S. 532 (1937). (1935), and Stone v. The court found that although "The instant case comes fairly close to satisfying the recoupment - 36 standaris of the Supreme Court, * * * the teaching of Rothensies is that the doctrine of equitable recoupment] is not a flexible doctrina but a doctrine strictly limited, and limited for good reason."i Ford v. United States, 276 F.2d at 23. The Court of Claims 1.d not cite United States v. Herring, supra, and United States v. Bowcut, 287 F.2d 654 (9th Cir. 1961), and Rev. Rul. 7156, supr t, had not yet been issued. The "good reason" referred to in Ford v. United States, supra, is the avoidance of the kind of staleness that the Supreme Court feared in Rothensies v. Electric Storage Battery Co., supra. Tha: concern does not apply in the case at hand. An automati: feature arising from the statutory relationship between the esta:e tax and the income tax is that once the value of the item included in the gross estate is finally determined, there is little or no factual issue with respect to the time-barred claim; hence th ere is no genuine issue of staleness. Furthermore, as the valu3 improperly excluded from (or included in) the gross estate aatomatically is the same amount erroneously included in (or excl2ded from) gross income, neither the Commissioner nor the taxpayer is required to perform extensive additional recordkeeping or investigation with respect to the time-barred claim. finally, unlike the overpaid excise taxes in Rothensies v. Electric Storage Battery Co., supra, which had been collected - 37 for more than 2 decades and time barred for more than 15 years, in this case the open claim and the time-barred claim arose at approximately the same time. In two recent decisions, Estate of Harrah v. United States, 77 F.3d 1122 (9th Cir. 1995), and Parker v. United States, 110 F.3d 678 • (9th Cir. 1997), the Court of Appeals for the Ninth Circuit, the circuit to which any appeal in this case would lie, held that equitable recoupment was not available because, inter alia, on the facts in those cases no tax had been imposed twice on a single transaction. These cases are distinguishable from the case at hand. In Estate of Harrah v. United States, supra, William F. Harrah died in 1978. His estate included 5,930,301 shares of common stock of Harrah's Inc. (Harrah's), which were valued at $13.325 per share in the estate tax return filed in 1980. 1980, Harrah's was merged with Holiday Inns, Inc. In (Holiday Inns). In this merger, the estate received $60,262,886 of cash, a $45 million promissory note executed by Holiday Inns, and convertible subordinated debentures of Holiday Inns with a face value of $105,262,800. The amount of the taxable gain reported by the estate from the merger transaction depended upon the value of the promissory note and the convertible subordinated debentures and the basis of the Harrah's stock. On its 1980 income tax return, the estate . - 38 valued ;he promissory note at its face value, $45 million, and the conzertible subordinated debentures at $84,210,240, on the basis of a 20-percent discount from their face value. Accordi1gly, the estate reported $110,451,865 of taxable gain on its reta::n. In :.982, the estate converted the debentures into Holiday Inns stock, which resulted in a basis of $16 per share. In this year, tao government determined a deficiency in estate tax, contendi:1g that the value of the Harrdh's stock was $34.05 rather than $13.325 as reported on the return. In L983, the estate sold 679,400 shares of Holiday Inns stock for $25,159,789, and distributed 1,101,447 shares to a marital :rust that was established by William F. Harrah's will, which also provided that the marital trust was to be funded from the esta:e. In 1984, the estate sold 58,200 shares of Holiday Inns stock for $2,620,487, and the marital trust sold all its shares for $58,177,080. In each of these sales, the ·$16 basis was used to compute the gain realized; Tre estate filed a petition with this Court, contesting the Commissioner's determination of the value of the Harrah's stock that it reported on the estate tax return. In 1986, during the pendenty of this litigation, the estate filed a timely income tax refund claim for 1980, on the ground that if it had undervalued the Harrah's stock, it had then overstated the gain it realized - 39 in the 1980 merger with Holiday Inns. At this time, the Commissioner and the estate stipulated that for estate tax purposes the Harrah's stock had a. value of $19.41 per share. Because of this stipulation, the value of the Harrah's stock was not an issue on appeal. See Estate of Harrah v. United States, supra at 1125 n.4. After the stipulation of the value of the Harrah's stock, the estate filed a revised claim for refund of its 1980 income taxes. In 1988, the Government stated that it would oppose the 1980 refund claim on the grounds that the convertible subordinated debentures were undervalued. In 1989, the estate filed suit in District Court for refund of $10,542,641 of income tax paid for the 1980 taxable year. At this time, the estate filed a claim for refund of income taxes for the 1983 and 1984 taxable years, and the marital trust filed a claim with respect to its 1984 taxable year. The claims filed for 1983 and 1984 were denied on the grounds that they were untimely. As a result of the denial of these claims, the estate amended its refund suit in District Court to include its claims for the 1983 and 1984 years. The marital trust joined in this action, and sought a refund for its 1984 taxable year. The District Court applied the doctrine of equitable recoupment and found the three refund claims were not barred by the statute of limitations and also found that the proper - 40 discoun; was 16.8 percent from the face value of the convertible subordiltted debentures, rather than 20 percent as reported on the est tie's 1980 income tax return. The District Court's determilttion of the amount of the discount was accepted by the Governm31tt and was not an issue on appeal. See Estate of Harrah v. Unitact States, supra at 1125. The only issue before the Court of Appeals for the Ninth Circuit uas,whether equitable recoupment would provide jurisdin.ion for the court to consider the estate's and trust's 1983 and 1984 time-barred claims for refund of the income tax paid on heir sales of the Holiday Inns stock. Harrah v United States, supra. See Estate of In ayer on a time-barred claim is available only when it _s asserted defensively against a timely claim by the government with respect to the same transaction. A tim3-barred claim alone cannot provide jurisdiction to rem>ve that bar. [Li._ at 1126.] The Court of Appeals found that both the estate and marital trust were seeking to employ equitable recoupment offensively as the basis of jurisdiction, in a manner not countenanced by Bull v. United States, supra, and United States v. Dalm, supra. id_ at 1 L26. See Further, the Court of Appeals found that the estate's and trust's attempts to supp y the required jurisdiction by characterizing their efforts to reduce their 1983 and 1984 taxes as an assertion of equitable recoupment in respect to the open 1980 tax year must fail because consideration of the 1983 and 1984 years was barred by the statute of limitations, and the 1983 and 1984 sales of the Holiday Inns stock transactions were distinct from the Harrah/Holiday Inns merger transactions occurring in 1980. Although the Court of Appeals found "a common thread of factual similarity" linking the 1983 and 1984 • transactions with the 1980 transactions, it was not enough to provide jurisdiction. See id at 1126. In Estate of Harrah v. United States, 77 F.3d 1122 (9th Cir. 1997), the Court of Appeals for the Ninth Circuit did not decide the issue now before us; the value of the stock in Harrah had been stipulated, and when the District Court determined the value of the convertible debentures, it consequently determined the amount of gain from the sale of that stock. • Unlike the stock at issue in this case, the convertible subordinated debentures were not items included in the estate for estate tax purposes. Furthermore, as the taxpayer's 1980 claim for refund of the overpayment of income tax realized in that sale was not time barred, the court did not have to consider the issue of whether the estate could recoup the excess income tax paid as a credit against the underpaid estate tax. In short, the issue now before us is the issue that was not before the Court of Appeals. - 42 In addition to these differences, the instant case is otherwine distinguishable from Estate of Harrah v. United States, supra. In our case, petitioner is not seeking to gain jurisdiction with a time-barred claim; we have jurisdiction because respondent determined a deficiency in petitioner's estate tax, isnted a notice of deficiency, and petitioner filed timely a petition in response thereto. Moreover, petitioner is not attempt..r g to reduce the income tax paid in the time-barred year; it is aa£erting that equitable recoupment is available to reduce the estate tax deficiency in the open year with the income tax on the same item that earlier was erroneously overpaid. Mo.it importantly, the 1983 and 1984 sales of the Holiday Inns sha2es by the estate and trust were many transactional generat..cns removed from the transfer of the Harrah's stock to the estate and its sale of that stock in the merger. Neither the convert..tle subordinated debentures nor the Holiday Inns shares were items included in the estate. Furthermore, unlike the item in Bull v. United States, supra, and the item in the instant case, t u Holiday Inns shares were not taxed once under the estate :tx as corpus and again under the income tax as capital gain. Fi1Llly, unlike the case at hand, where the only act of petitioler that contributed to the circumstance of double taxatio was the erroneous valuation of those assets, see United - 43 - . States v. Bowcut, 287 F.2d at 656 (the "only act of this taxpayer [the executrix] which contributed to the circumstance of a double tax upon the estate was her erroneous return of estate tax liability"), the taxpayer in Estate of Harrah v. United States, supra, engaged in several sales transactions with multiple valuation errors. In Parker v. United States, 110 F.3d 678 • (9th Cir. 1997), the appellants (sisters) were the two daughters of Eleanor Parker (mother), who died in 1971. In 1972, the sisters sued Edward Allison (stepfather), alleging that he had abused his role as a fiduciary by embezzling funds from the mother's separate assets and from a testamentary trust created by the mother in 1958 for the sisters. The suit was settled in 1975 with the stepfather agreeing in part to create a $325,000 settlement trust. The income of the settlement trust was to be paid to the stepfather, and the remainder was to be paid to the sisters upon his death. The stepfather died in 1985. At the request of the executor of the stepfather's estate, and over the objections of the • sisters, the trustee paid $90,000 in estate taxes owed by the stepfather's estate from the corpus of the settlement trust. The sisters filed a timely claim for refund following the estate tax payment, which was rejected by the Government. filed suit for refund in the District Court. The sisters then - 44 - . . In the District Court, the Government moved for summary judgmen arguing that the sisters were not entitled to a refund because the value of the settlement trust, if not part of the stepfather's estate, was part of the mother's estate." The Governmort claimed--by way of asserted equitable recoupment--that taxes due from the mother's estate greatly exceeded the $90,000 that the sisters were trying to recover. The District Court granted the)Government's motion. Tho sisters filed a timely motion for reconsideration in 1995, a.:cuing for the first time that equitable recoupment did not app.3 because the case did not involve a single transaction or an identity of interest as required under the doctrine. The Distric: Court denied the sisters' motion for reconsideration, finding that equitable recoupment applied. The District Court reasoned that the case involved a single transaction, the taxation of the settlement trust, and that the requisite identity of inte: est was present because the parties seeking the refund were the same parties who received the benefit of a larger inherit,trce when the mother's estate was not taxed. "Tan District Court found that at the time of her death, the mother had a cause of action against the stepfather for his fraudulort conveyances. By converting; the mother's asset (her cause o: action) into a sum certain by settling the claim, that sum was therefore includable in the mother's gross estate. See Parker 7. United States, 110 F.3d 678, 681 (9th Cir. 1997)! - 45 On appeal, the Court of Appeals for the Ninth Circuit accepted the Government's concession that the settlement trust had been improperly included in the stepfather's estate. However, the Court of Appeals concluded that even if the mother's claim against the stepfather had been includable in her estate, the Government's claim against her was time barred and that bar could not be circumvented by application of the doctrine of • equitable çecoupment because this case involved two or more taxpayers, two or more transactions, no inconsistent treatment between them, and no equitable reason to deny the sisters their refund. . In concluding that the District Court erroneously combined two or more separate transactions and analyzed them under the guise of taxation of the trust, the Court of Appeals for the Ninth Circuit observed that when the Supreme Court declared in Rothensies v. Electric Storace Battery Co., 329 U.S. at 299, that equitable recoupment "permit[s] a transaction which is made the subject of suit by a plaintiff to be examined in all its aspects, and judgment to be rendered that does justice in view of the one transaction as a whole." * * * This pronouncement, however, does not mean that courts should lump together related, but nonetheless separate transactions so that the facts of a case can be viewed as "one transaction as a whole." * * * [Parker v. United States, supra at 684; citation omitted.] A number of factors contributed to the Court of Appeals' decision in Parker to treat the sisters' matter as involving more • - 46 than a ajngle transaction. First, neither the mother nor her estate was a party to the settlement trust created 4 years after the motle r's death. Second, it was not the creation of the trust that ga re rise to the tax liability that the Government claimed existed vith respect to the mother's estate. The mothey's estate tax liahjlity existed because she possessed a valuable right when she die returns. In 1958, after the period of limitations had expired to claim a refund of the estate taxes, the Gover ment determined deficiencies in the beneficiaries' income tax because of their reporting position with respect to the dividends. The benefic:aries paid the income tax deficiencies and broug t a suit for refund. The District Court denied them equitable recoupment against the time-barred estate tax, holding that the singletransaction test of Rothensies v. Electric Storage Battery Co., supra, ras not satisfied. Supp. at 549-550. See Boyle v. United States, 232 F. The Court of Appeals for the Third Circuit reversec, finding that there was "double taxation of the single - 23 item" as both corpus and income, which sufficed to satisfy the requirements of Bull v. United States. See Boyle v. United States, 355 F.2d at 236. The Court of Appeals distinguished Rothensies v. Electric Storage Battery Co., on the grounds that in Rothensies v. Electric Storage Battery Co., the taxpayer "waited over twenty years to seek a refund",¹²and the facts in Boyle were much closer to the facts in Bull than were the circumstances of the taxpayer in Rothensies v. Electric Storage Battery Co. See Boyle v. United States, 355 F.2d at 236-237. . In O'Brien v. United States, supra, decedent's estate paid estate tax on the stock of a closely held corporation, which it valued at $215.7796 per share. In the year following the decedent's death, the Government determined a deficiency in the estate tax, asserting a higher value of the stock, and the taxpayer (one of decedent's heirs) filed a petition to the Tax Court. While the valuation issue was pending, the corporation was liquidated, and, for the purpose of calculating the resulting capital gain reportable on his income tax return, the taxpayer used the value of the shares reported on the estate tax return. The Government did not dispute this valuation and accepted the payment of income tax on the gain arising from the liquidation. ¹²Thus,the Court of Appeals for the Third Circuit indicated that in any equitable claim, an equitable defense, such as laches, may bar the claim. - 24 - In 1980, he Tax Court entered a stipulated decision in he estate taaid and now is recovering. The recoupment claim thui arises from a different transaction (the reduced ded 1ction from the estate tax) than the refund claims (th 3 increased deductions from ordinary income). The gov 3rnment is not seeking to offset against each other two taxes levied on the same transaction, but to offset the tax on one transaction against the tax on another. * * * [ld at 714.] Th , although the precipitating transaction was the deduction of the business expenses, the Court of Cla-ims did not find thi:; sufficient.¹ª In 149 Ct. .939, the taxpayers (children) in Ford v. Unite 1. 558, 276 F.2d 17 States, (1960), received stock in a closely ¹8Pcademic commentators have almost invariably supported the Herrino-Howcut analysis over the conclusion of the Court of Claims. See Andrews, supra at 630-650; Willis, "Some Limits of Equitablo Recoupment, Tax Mitigation, and Res Judicata: Reflections Prompted by Chertkof v. United States", 38 Tax Law. 625, 642··645 (1985). - 35 held Brazilian coffee company from their deceased father's estate. For estate tax purposes, the executors reported the date-of-death fair market value of the stock at $11,857, which was adjusted upward to $23,715 in an audit of the estate tax return. Eight years later, in 1947, the children sold the stock for $258,948, and reported gain based upon the adjusted date-ofdeath value of the stock. • The children then filed a timely claim for refund, asserting that the basis reported on the income tax returns was erroneous, and that the correct date-of-death value, and, therefore correct basis, was $331,418. See id. at 20. The Government denied the refunds, on the basis of the dateof-death value reported in the estate tax return. The children filed suit in the Court of Claims, and at trial the court found that the actual fair market value of the stock at the date of the father's death was greater than the amount the children received in the 1947 sale. The Government did not advert that it might be entitled under the doctrine of equitable recoupment to offset the overpaid income tax against the earlier underpaid estate tax. However, on its own initiative the Court of Claims considered this issue, and on a 3-2 vote, held that the Government was not entitled to recoupment because the facts were not identical to those in Bull v. United States, 295 U.S. 247 White, 301 U.S. 532 (1937). (1935), and Stone v. The court found that although "The instant case comes fairly close to satisfying the recoupment - 36 standards of the SupremeCourt, * * * the teaching of Rothensies is that [:he doctrine of equitable recoupment) is not a flexible doctrine, but a doctrine strictly limited, and limited for good reason." Ford v. United States, 276 F.2d at 23. Thé Coulrt of Claims dül not cite United States v. Herring, supra, and United States v. Bowcut, 287 F.2d 654 (9th Cir. 1961), and Rev. Rul. 71- 56, supra. had not yet been issued. The 'good reason" referred to in Ford v. United States, supra, is the avoidance of the kind of staleness tha the Supreme Court feired in Rothensies v. Electric Storage Battery Co., supra. Tha; concern does not apply in the case at hand. An automati: feature arising from the statutory relationship between the esta a tax and the income tax is that once the value f the item inc.tded in the gross estate is finally determined, there is little o: no factual issue with respect to the time-barred claim; hence there is no genuine issue of staleness. Furthermore, as the value improperly excluded from (or included in) the gross estate aut omatically is the same amount erroneously nclu ed in (or excluced from) gross income, neither the Commissioner nor the taxpayer is required to perform extensive additional recordkeeping or investigation with respect to the time-barred claim. jnally, unlike the overpaid excise taxes in Rothensies v. Elect c Storage Battery Co., supra, which had been collected - 37 for more than 2 decades and time barred for more than 15 years, in this case the open claim and the time-barred claim arose at approximately the same time. In two recent decisions, Estate of Harrah v. United States, 77 F.3d 1122 (9th Cir. 1995), and Parker v. United States, 110 F.3d 678 (9th Cir. 1997), the Court of Appeals for the Ninth Circuit, the circuit to which any appeal in this case would lie, • held that equitable recoupment was not available because, inter alia, on the facts in those cases no tax had been imposed twice on a single transaction. These cases are distinguishable from the case at hand. In Estate of Harrah v. United States, supra, William F. Harrah died in 1978. His estate included 5,930,301 shares of common stock of Harrah's Inc. (Harrah's), which were valued at $13.325 per share in the estate tax return filed in 1980. 1980, Harrah's was merged with Holiday Inns, Inc. In (Holiday Inns). In this merger, the estate received $60,262,886 of cash, a $45 million promissory note executed by Holiday Inns, and convertible subordinated debentures of Holiday Inns with a face value of $105,262,800. The amount of the taxable gain reported by the estate from the merger transaction depended upon the value of the promissory note and the convertible subordinated debentures and the basis of the Harrah's stock. On its 1980 income tax return, the estate - 38 valued the promissory note at its face value, $45 million, and the coninrtible subordinated debentures at $84,210,240, on the basis of a 20-percent discount from their face value. Accordilgly, the estate reported $110,451,865 of taxable gain on its ret2rn. In :982, the estate converted the debentures into Holiday Inns staùk, which resulted in a basis of $16 per share. In this year, t u Government determined a deficiency in estate tax, contend.1g that the value of the Harrah's stock was $34.05 rather than $1 325 as reported on the return. In J983, the estate sold 679,400 shares of Holiday Inns stock for $25,159,789, and distributed 1,101,447 shares o a marital trust that was established by William F. Harrah's will, which a..e o provided that the marital trust was to be funded from the est.ite. In 1984, the estate sold 58,200 shares of Holiday Inns stock for $2,620,487, and the marital trust sold all its shares cr $58,177,080. In each of these sales, the ~$16 basis was usect to compute the gain realized. The estate filed a petition with this Court, contes ing the Commiss; cner's determination of the value of the Harrah's stock that it reported on the estate tax return. In 1986, during the pendency of this litigation, the estate filed a timely ihcome tax refund claim for 1980, on the ground that if it had unde, valued . the Har2ah's stock, it had then overstated the gain it realized - 39 in the 1980 merger with Holiday Inns. At this time, the Commissioner and the estate stipulated that for estate tax purposes the Harrah's stock had a. value of $19.41 per share. Because of this stipulation, the value of the Harrah's stock was not an issue on appeal. See Estate of Harrah v. United States, supra at 1125 n.4. After the stipulation of the value of the Harrah's stock, the estate)filed a revised claim for refund of its 1980 income taxes. In 1988, the Government stated that it would oppose the 1980 refund claim on the grounds that the convertible subordinated debentures were undervalued. In 1989, the estate filed suit in District Court for refund of $10,542,641 of income tax paid for the 1980 taxable year. At this time, the estate filed a claim for refund of income taxes for the 1983 and 1984 taxable years, and the marital trust filed a claim with respect to its 1984 taxable year. The claims filed for 1983 and 1984 were denied on the grounds that they were untimely. As a result of the denial of these claims, the estate amended its refund suit in District Court to include its claims for the 1983 and 1984 years. The marital trust joined in this action, and sought a refund for its 1984 taxable year. The District Court applied the doctrine of equitable recoupment and found the three refund claims were not barred by the statute of limitations and also found that the proper - 40 discoun; was 16.8 percent from the face value of the convertible subordiusted debentures, rather than 20 percent as reported on the estat e's 1980 income tax return. The District Court's determiu tion of the amount of the discount was accepted by the Governmort and was not an issue on appe.al. See Estate o Harrah v. Unitoc States, supra at 1125. The only issue before the Court of Appeals for the Ninth Circuit vas,whether equitable recoupment would provide jurisdiction for the court to consider the estate's and trust's 1983 and 1984 time-barred claims for refund of the income tax paid on their sales of the Holiday Inns stock. See sta e of Harrah v. United States, supra. In ceciding this issue, the Court of Appeals stated The "single transaction" requirement is but a reflection of the requirement that recoupment by the ta>payer on a time-barred claim is available only when it is asserted defensively against a timely claim b th( government with respect to the same transaction A tine.-barred claim alone cannot provide jurisdiction to renove that bar. [Id. at 1126.] The Court of Appeals found that both the estate and marital trust wer3 seeking to employ equitable recoupment offensively as the basis of jurisdiction, in a manner not countenan ed by Bull v. United States, id. at 1126. estate's supra, and United States v. Dalm, suprd. See Further, the Court of Appeals found that the and trust's attempts to supply the required Jurisdiction by charac;erizing their efforts to reduce their 1983 and 1984 . _ 41 _ taxes as an assertion of equitable recoupment in respect to the open 1980 tax year must fail because consideration of the 1983 and 1984 years was barred by the statute of limitations, and the 1983 and 1984 sales of the Holiday Inns stock transactions were distinct from the Harrah/Holiday Inns merger transactions occurring in 1980. Although the Court of Appeals found "a common thread of factual similarity" linking the 1983 and 1984 transactions with the 1980 transactions, it was not enough to provide jurisdiction. See id. at 1126. In Estate of Harrah v. United States, 77 F.3d 1122 (9th Cir. 1997), the Court of Appeals for the Ninth Circuit did not decide the issue now before us; the value of the stock in Harrah had been stipulated, and when the District Court determined the value of the convertible debentures, it consequently determined the amount of gain from the sale of that stock. • Unlike the stock at issue in this case, the convertible subordinated debentures were not items included in the estate for estate tax purposes. Furthermore, as the taxpayer's 1980 claim for refund of the overpayment of income tax realized in that sale was not time barred, the court did not have to consider the issue of whether the estate could recoup the excess income tax paid as a credit against the underpaid estate tax. In short, the issue now before us is the issue that was not before the Court of Appeals. / . - 42 - In addition to these differences, the instant case is otherwine distinguishable from Estate of Harrah v. United States, supra. In our case, petitioner is not seeking to gain jurisdiction with a time-barred claim; we have jurisdiction because respondent determined a deficiency in petitioner†s estate tax, iss ued a notice of deficiency, and petitioner filed timely a petitior in response thereto. Moreover, petitioner is not attempting to reduce the income tax paid in the time-barred year; it is asserting that equitable recoupment is available tö reduce the estata tax deficiency in the open year with the income tax on the same item that earlier was erroneously overpaid. Most importantly, the 1983 and 1984 sales of the Holiday Inns shar±s by the estate and trust were many transactional generatiols removed from the transfer of the Harrah's stock to the estato and its sale of that stock in the merger. Neither the convertio.e subordinated debentures nor the Holiday Inns shares were itena included in the estate. in Bull v Furthermore, unlike the item United States, supra, and the item in the instant case, tha Holiday Inns shares were not taxed once under the estate tan as corpus and again under the income tax as capital gain. Fin L ly, unlike the case at hand, where the only act of petition a that contributed to the circumstance of double taxation was the erroneous valuation of those assets, see United - 43 States v. Bowcut, 287 F.2d at 656 (the "only act of this taxpayer [the executrix] which contributed to the circumstance of a double tax upon the estate was her erroneous return of estate tax liability"), the taxpayer in Estate of Harrah v. United States, supra, engaged in several sales transactions with multiple valuation errors. In Parker v. United States, 110 F.3d 678 • the appellants (9th Cir. 1997), (sisters) were the two daughters of Eleanor Parker (mother), who died in 1971. In 1972, the sisters sued Edward Allison (stepfather), alleging that he had abused his role as a fiduciary by embezzling funds from the mother's separate assets and from a testamentary trust created by the mother in 1958 for the sisters. The suit was settled in 1975 with the stepfather agreeing in part to create a $325,000 settlement trust. The income of the settlement trust was to be paid to the stepfather, • and the remainder was to be paid to the sisters upon his death. The stepfather died in 1985. At the request of the executor of the stepfather's estate, and over the objections of the . sisters, the trustee paid $90,000 in estate taxes owed by the stepfather's estate from the corpus of the settlement trust. The sisters filed a timely claim for refund following the estate tax payment, which was rejected by the Government. filed suit for refund in the District Court. The sisters then - 44 - In . :1.e District Court, the Government moved for summary judgment 2 rguing that the sisters were not entitled to a refund because d e value of the settlement trust, if not part of the stepfathor 's estate, was part of the mother's estate." The Government claimed--by way of asserted equitable recoupment--that taxes duo from the mother's estate greatly exceeded the $90,000 that the sisters were trying to recover. granted The District Court .re Government's motion. The sisters filed a timely motion for reconsideration in 1995, aryting for the first time that equitable recoupment did not apply because the case did not involve a single trans ction or an idortity of interest as required under the doctrine. The District Court denied the sisters' motion for reconsideration, finding trat equitable recoupment applied. The District Court reasoned that the case involved a single transaction, the taxation cf the settlement trust, and that the requisite identity of internet was present because the parties seeking the refund were the same parties who received the benefit of a larger inheritance when the mother's estate was not taxed. "The District Court found that at the time of her de th, the mother had a cause of action against the stepfather for his fraudulent conveyances. By converting the mother's asset (her cause of action) into a sum certain by settling the claim, that sum was therefore includable in the mother's gross estate. See Parker v United States, 110 F.3d 678, 681 (9th Cir. 1997). - 45 On appeal, the Court of Appeals for the Ninth Circuit accepted the Government's concession that the settlement trust had been improperly included in the stepfather's estate. However, the Court of Appeals concluded that even if the mother's claim against the stepfather had been includable in her estate, the Government's claim against her was time barred and that bar could not be circumvented by application of the doctrine of • equitable çecoupment because this case involved two or more taxpayers, two or more transactions, no inconsistent treatment between them, and no equitable reason to deny the sisters their refund. In concluding that the District Court erroneously combined two or more separate transactions and analyzed them under the guise of taxation of the trust, the Court of Appeals for the Ninth Circuit observed that when the Supreme Court declared in Rothensies v. Electric Storage Battery Co., 329 U.S. at 299, that equitable recoupment . "permit[s] a transaction which is made the subject of suit by a plaintiff to be examined in all its aspects, and judgment to be rendered that does justice in view of the one transaction as a whole." * * * This pronouncement, however, does not mean that courts should lump together related, but nonetheless separate transactions so that the facts of a case can be viewed as "one transaction as a whole." * * * [Parker v. United States, supra at 684; citation omitted.] A number of factors contributed to the Court of Appeals' decision in Parker to treat the sisters' matter as involving more • - 46 than a s.ngle transaction. First, neither the mother nor her estate e-ts a party to the settlement trust created 4 years after the mot7or's death. Second, it was not the creation of the trust that gavo rise to the tax liability that the Government claimed 1 existed uith respect to the mother's estate. The mother's estate tax lial.lity existed because she possessed a valuable right when she die d. the claim against the stepfather for conversion, embezzlanent, and breach of fiduciary duty. The Court of Appeals for the tinth Circuit reasoned that these "transactions" (the mother's death or the stepfather's tortious conduct giving rise to the ncther's chose in action) were undeniably separate from the event giving rise to the sisters' refund claim--the stepfather's death and the concededly erroneous taxation of his estate. See Parker v. United States, supra at 684. While the Court of Appeals conceded that the creation and taxation of the settlement trust were in some ways related to these various transactions, it found that any factual and arithmetic link between them was insufficient to enable the Government to succeed in its claim for recoupment. See id. In contrast to Parker, in which the mother was not even a party tc the creation of the settlement trust, in the case at hand, petLtioner both undervalued and sold the shares of stock that gave rise to the estate tax deficiency, and the same undervaluation and sale automatically resulted in petitioner's . I - 47 realization of excess income, and the payment of excess income tax. Therefore, unlike the taxpayer in Rothensies v. Electric Storage Battery Co., supra, and the Government in Parker v. United States, supra, petitioner is not attempting to lump distinct transactions separated by many years into a single taxable event.2° Any appeal in this case would lie to the Court of Appeals • for the Nigth Circuit, and we are bound by any decision of that court squarely in point. 756-757. See Golsen v. Commissioner, 54 T.C. at However, the Court of Appeals did not consider the precise issue now before us, and both Estate of Harrah v. United States, 77 F.3d 1122 (9th Cir. 1995), and Parker v. United States, 110 F.3d 678 (9th Cir. 1997), are otherwise distinguishable on their facts; Golsen does not apply. See isla Here, there is more than a mere logical relationship or factual and arithmetical link between the tax paid on the gain realized on the shares sold by petitioner and the valuation of those same shares for the estate tax. Because of the statutory 2°When the taxpayer in Rothensies v. Electric Storage Battery Co., 329 U.S. 296 (1946), brought suit in 1943, the claim pleaded as recoupment was for taxes collected over 20 years before and barred by statute for over 16 years. See id at 302303. Similarly, in Parker v. United States, 110 F.3d 678 (9th Cir. 1997), the settlement trust was created in 1975, 4 years after the mother's death, and it was a decade later before the Government "roused to action" when the sisters sought the refund to which they were entitled. See id at 685. In the instant case, the stock was sold by petitioner in the year immediately following decedent's death. - 48 relationship between sections 2031 and 1014, there is automatic causality between the fair market value of shares reported by the estate a vl the gain recognized on the sale of the same property. The purpm e of section 1014 is, in general, to provide a basis for propa: ty acquired from a decedent that is equal to the value placed uaan such property for purposes of the Federal estate tax. See sec. :..1014-1(a), Income Tax Regs. Once the proper date-of- death fair.market value is established by judicial process and made sub ject to the estate tax, it is automatic, under the facts of this n.se, that gain has been improperly subjected to the income t u:. Accordingly, we find that the single transaction, item, or taxable event requirement is met. 3. Inco u istent Treatment Bot 1 the estate and the income tax depend upon the same matter o fact--the fair market value of the shares at the date of decedoI,t's death. Accordingly, the value existing at decedent tj death is taxed only once. See secs. 1014, 2031. I With respect to this issue in Parker v. United States, supra, th( Court of Appeals for the Ninth Circuit compared the facts of that case, in which there was an erroneous inclusion in . the step:!Ether's estate and an erroneous failure to assess the full value of the mother's gross estate, with Bull v. United States, 255 U.S. 247 (1935), in which the same amount of partnership profits was taxed as both corpus and income. See - 49 Parker v. United States, supra at 685. In Parker, the court reasoned that while the Gsovernment's failure to determine a deficiency in the mother's estate on the basis of the value of the remainder interest, and the inclusion of the corpus in the stepfather's estate were both wrong, the erroneous tax treatment of the separate estates was not the result of inconsistent theories of taxation as required under the doctrine. See i L The instant case is clearly distinguishable from Parker v. United States, supra. In this case, the same item has been subjected to taxation under inconsistent theories, as corpus under the estate tax and as capital gain under the income tax. We conclude that this requirement is satisfied. See Bull v. United States, supra at 261; see also Boyle v. United States, 355 F.2d at 236 (treatment of the same fund as both corpus and income provided the necessary inconsistency of treatment). 4. Identity of Interest The courts that have found equitable recoupment available in the cases before them have not required absolute identity of interest between the payor of the erroneous overpayment (or underpayment where the Government asserts recoupment) and the recipient of the recoupment. However, if the subject transaction involves two or more taxpayers, equitable recoupment will not be - 50 availab Lt unless a sufficient identity of interest exists so that the tax;>tyers should be treated as one. See Parker v. United States, ¿upra at 683. In the instant case, we find that there is sufficient identit 7 of interest between petitioner and the payor of the tax that petitioner seeks to recoup. Decedent's will provides that the estate taxes are to be paid from the residue of the estate, and pet.tioner sold stock included in that residue to pay its estate tax liability. The gain realized on the sales passed through to the residuary legatee, March, who reported the gain and paid the income tax due. Any adjustment through recoupment will ber.efit only the residuary legatee, and any distinction of legal er.tities would be purely artificial. 301 U.S 532 (1937) See Stone v. White, (identity of interest between the trust which paid the tax and the beneficiary who had received the income); Estate cf Vitt v. United States, 706 F.2d 871, 875 n.3 (8th Cir. 1983) (sufficient identity of interest between the separate estates of deceased spouses, because the same parties detriment111y affected by the overpayment of estate tax would receive tTe proceeds from recoupment); Boyle v. United States, supra at 236 (sufficient identity of interest betweeñ estate that paid esta:e tax on accumulated dividend arrearages iñcluded in corpus and all the beneficiaries of the estate who later were paid the dividends and liable for the income tax thereon); United - 51 States v. Herring, 240 F.2d 225, 228 (4th Cir. 1957) (sufficient identity between decedent and estate); Bowcut v. United States, 175 F. Supp. 218, 221-222 (D. Mont. 1959) (same). To reflect the foregoing, Decision will be entered under Rule 155. Reviewed by the Court. ,, GERBER, WELLS, COLVIN, HALPERN, BEGHE, CHIECHI, LARO, VASQUEZ, GALE, THORNTON, and MARVEL, ., agree with this majority opinion. FOLEY, - 52 BEUFE, J., concurring: Having joined the majority opinion, I write separately to respond to Judge Chabot's argument that the structure of our deficiency jurisdiction prohibits us from applyinç aquitable recoupment to redetermine petitioner's estate tax deficiency. In J2dge Chabot's view, the sole issue for decision in the case at hand, as he argued in Estate of Mueller v. Commissioner, 101 T.C. 551, 565-566 (1993) (Mueller II), is the valuation of the Savin gs and Willits shares included in decedent's gross estate. nasmuch as we have performed that task in Branson I, the dissaï1t contends that nothing remains for us to do to redetermi.ie petitioner's estate tax deficiency. valuatior I disagree: Our also, as a practical matter, have redetermined a correspo uling increase in the section 1014(a) basis of the shares, msulting in the residuary legatee's time-barred overpaymn t of tax on the sale of the shares. . Wor ting with the definition of "deficiency" in section 6211(a), there is a way in which the residuary legatee's overpaymm t is taken into account in computing petitioner's estate t > deficiency. element of I While the approach I suggest requires an fictive or "as if" thinking in applying the statute, I believe ire grounds for applying equitable recoupment to the facts of this case support an interpretation of section 6211(a) - 53 that allows the residuary legatee's overpayment to be taken into account in determining petitioner's estate tax deficiency. As Judge Chabot points out, the Tax Court's task in this case is to redetermine petitioner's estate tax deficiency, and "deficiency" is a term of art in Federal taxation that has special significance for our jurisdiction. See Murphree v. Commissioner, 87 T.C. 1309, 1311 (1986); Martz v. Commissioner, 77 T.C. 74 , 754 (1969). (1981); Hannan v. Commissioner, 52 T.C. 787, 791 Section 6211(a) defines "deficiency" as follows: SEC. 6211 DEFINITION OF A DEFICIENCY. (a) In General.-- For purposes of this title in the case of income, estate, and gift taxes imposed by subtitles A and B. and excise taxes imposed by chapters 41, 42, 43, and 44 the term "deficiency" means the amount by which the tax imposed by subtitle A or B, or chapter 41, 42, 43, or 44 exceeds the excess of-(1) the sum of (A) the amount shown as the tax by the taxpayer upon his return, if a return was made by the taxpayer and an amount was shown as the tax by the taxpayer thereon, plus (B) the amounts previously assessed (or collected without assessment) as a deficiency, over-(2) the amount of rebates, as defined in subsection (b)(2), made. In other words, the deficiency (d) equals the correct tax imposed (t) less the total tax shown on the return (s) plus prior - 54 assessments (a) less rebates (r).¹ Under this definition, a deficier cy in estate tax will generally result if a taxpayer is found tc ave undervalued property included in the gross estate because a increase in the value of included property will increasc the amount of tax imposed by subtitle B. Just as the amount cf the deficiency is affected by the amount of tax imposed under stbbitle B, it can also be affected by "amounts previously assessec (gr collected without assessment) as a deficiency", sec. 6211(a) (1) (B), see sec. 1.6211-1(e), Income Tax Regs., and rebates made, see sec. 6211(a)(2). In aJplying equitable recoupment within the statutory scheme of sectial 6211(a), we are in effect holding, after concluding that the residuary legatee paid too much income tax on petitione r's gain on the 1992 sales of Willits and Savings shares, tlat petitioner has been assessed an additional amount of estate ta within the meaning of section 6211(a)(1)(B). In so doing, we treat the income tax overpayment as if it were a partial aasessment of the estate tax deficiency. The residuary legatee's income tax overpayment thereby has the effect of reducing :he amount of the estate tax deficiency, not as a below- ¹ E:gressed as a mathematical formula: d = t - (s + a - r). The formi.a can also be expressed as follows: d = (t - s) - (a - r). - 55 the-line subtraction from the deficiency, but as an above-the- line (negative) element of the deficiency itself. See sec. 6211(a)(1)(B). There is a long and honorable tradition of using legal fictions to overcome the rigidity of the law in order to make the legal system function fairly.2 A legal fiction is a falsehood that is deemed to be true for limited purposes designed to bridge the gap between concept and reality.3 "A doctrine which is plainly fictitious must seek its justification in considerations of social and economic policy; a doctrine which is nonfictitious 2 See ACLU of Mississippi, Inc. v. Finch, 638 F.2d 1336, 1340 n.7 (5th Cir. 1981), and texts cited. This case and these texts conclude that legal fictions can be useful and justified if employed with the understanding of producer and consumer of their character as such. See also United States v. Dalm, 494 U.S. 596, 612-623 (1990) (Stevens, J., dissenting), discussed infra pp. 7-8. In effect, when we engage in a fiction, we redefine reality to comport with existing law as a method of changing the law to meet new realities * * *. This method of adapting the law to changing circumstances and perceptions is saved from absurdity by its underlying rationality. * * * when used properly the legal fiction is a rule of law embodying an unconcealed falsehood at one level and a deeper truth at another more important level. The falsehood is often made necessary because of the pre-existing structure of the law, and is justified (if it is justified) by the deeper underlying truth contained within the falsehood. Miller, "Liars Should Have Good Memories: Legal Fictions and the Tax Code", 64 U. Colo. L. Rev. 1, 26 n.109 (1993). - 56 often has spurious self-evidence about it." Fictions L. Fuller, Legal 71 (1967).4 The ;oncepts of tax "deficiency" and "underpayment" are themselve 3 legal constructs that amount to fictions, inasmuch as neither o? them purports to be the amount of a petitioner's remaining obligation to pay tax; they stand in somewhat the same relations lip to such obligation as shadows do to the threedimension 11,object. However, once a deficiency determined by the Commissioler (or redetermined by the Tax Court) is assessed, the deficienci becomes a legal obligation that the Commissioner can collect, and reality painfully intrudes. By a..lowing the residuary legatee's overpayment to be taken into account in determining petitioner's estate tax deficiency, we do no nore than give effect to the accepted notions that "the rule of ac{uitable recoupment permits recovery of an otherwise barred claim by resort to the fiction that the overpayment is a credit or defense against a later asserted tax liability for a year opel to suit" and that "The doctrine of equitable recoupment utilizes 1.he fiction of a tax credit or defense to liability for a year o3en to suit to avoid violation of the statutory scheme providin J for finality of tax determinations." Holzer v. United 4 Originally published in slightly different form in three parts in ;5 Ill. L. Rev. 363, 513, 865 (1930-31). - 57 - States, 250 F. Supp. 875, 877-878 (E.D. Wis. 1966), affd. per curiam 267 F.2d 822 (7th Cir. 1966). "[T]he SupremeCourt has explicitly and repeatedly stated that it is sometimes appropriate to interpret statutes in a manner inconsistent with their literal language." Zelenak, "Thinking About Nonliteral Interpretations of the Internal Revenue Code", 64 N.C. L. Rev. 623, 631 (1986). id. at 624 Zelenak notes, that in the preceding 4 years the SupremeCourt had decided at least four tax cases by adopting on confirming a nonliteral interpretation of the Code.5 Similarly, the "two wrongs make a right" character of equitable recoupment, see Willis, "Some Limits of Equitable Recoupment, Tax Mitigation, and Res Judicata: Reflections Prompted by Chertkof v. United States," 38 Tax Law. 625 (1985), emphasizes that "Recoupment, rather than extending the statute of limitations to correct a perceived injustice, permits a wronged party to recoup the loss against a sum still open to litigation." Id at 633. In so doing, recoupment uses the legal fiction that the recoupment claim is an element in the computation of the tax subject to the timely claim, rather than the time-barred tax. The "two wrongs make a right" notion signifies that where an S Citing and discussing Paulsen v. Commissioner, 469 U.S. 131 (1985); Bob Jones Univ. v. United States, 461 U.S. 574 (1983); Commissioner v. Tufts, 461 U.S. 300 (1983); Hillsboro Natl. Bank v. Commissioner, 460 U.S. 370 (1983). - 58 earlier natter has received erroneous tax treatment, "[recoupnent] does not correct the wrong, as does the mitigation statute, but instead causes a later matter to be equally wrong in the oppc-site direction. " I_dcL As Justice Stevens observed in his dissent in United States v. Dalm, 494 U.S. 596, 612-623 (1990), the Supreme Court in Bull v. Unite d States, 295 U.S. 247 (1935), could have taken the strict ti3w,that the statute of limitations barred the taxpayer's claim, but instead "avoided that unjust result" by construing the plaintiff's rights in a Federal tax refund suit by reference to those of a defendant, thereby proceeding "under * * * the presumptian that for every right there should be a remedy." United States v. Dalm, supra at 616-617. Acknowledging that treating a plaintiff like a defendant "so as to permit, in effect, t1e equitable tolling of the limitations period" was perhaps "an unusually flexible treatment of legal categories," Justice 3.evens observed that such treatment was "nothing more than the necessary expression of an exception to a generally approprir.e definition", an exception that had received the status of a legal rule under Bull. Id at 618. See Tierney, "Equitab Le Recoupment Revisited: The Scope of the Doctrine Revisitel in Federal Tax Cases after United States v. Dalm," 80 Ky. L.J. 95, 131-165 (1992). - 59 - . In Mueller II, we opined that we have authority to apply equitable recoupment in a case over which we have jurisdiction; in Estate of Mueller v. Commissioner, 107 T.C. 203 (1996) (Mueller III), we held, consistent with the view of the majority in United States v. Dalm, supra, that equitable recoupment is properly confined to its traditional role as an affirmative defense.6 Having held in the case at hand that the requirements of equitable recoupment have been satisfied, our application of the doctrine does no more violence to the structure of section 6211(a) than the availability of equitable recoupment in the refund forums does to the Internal Revenue Code as a whole. 6 This observation serves to distinguish equitable recoupment and the case at hand from Commissioner v. Lundy, 516 U.S. 235 (1996). - 60 LARD _, concurring: ' The United States Tax Court is a court of ..aw that, like the United States District Courts, has the auth1:ity to apply equitable principles such as equitable recoupme Y.. separate L The majority holds as much, and I agree. I write to emphasize the fact that this Court, although differen: from District Courts in a few regards, the most obvious of which ..s that District Courts were created under Article III of the U,t:. Constitution whereas this Court was created under Article C of the U.S. Constitution, is a court of law that has the auth wity to apply all of the judicial powers of a District Court. This Court's predecessors, namely, the Board of Tax Appeals and the "E x Court of the United States, were not courts of law, and they c.id not possess the judicial powers of a District Court. This Cou::t's predecessors were independent agencies in the executivo ¡branch of the Federal Government, and, as such, their I powers were limited to those powers conferred upon them by the executive branch. See Commissioner v. Gooch Millino & Elevator Co., 320 L.S. 418 (1943); Old Colony Trust Co. v. Commissioner, 279 U.S. ~/16, 725 (1929). The fact that this Court's predecesocrs were executive agencies and not courts of law made them funciamentally different from the District Courts. that thi The fact Court's predecessors were executive agencies and not courts oí law made them fundamentally different from this Court. - 61 Following the passage of the Tax Reform Act of 1969 (1969 Act), Pub. L. 91-172, sec. 951, 83 Stat. 730, the United States Tax Court is the functional equivalent of a District Court. sec. 951 of the 1969 Act, 83 Stat. 730. See See also Freytag v. Commissioner, 501 U.S. 868, 890-891 (1991). Through the 1969 Act, Congress changed the status of this Court from an "independent agency in the Executive Branch of the Government" to • a "court of.record" "established * * * under Article I of the Constitution of the United States". See sec. 7441 before and after amendment by the 1969 Act; see also Freytag v. Commissioner, supra at 890-891. Congress established the United States Tax Court through a constitutionally permissible exercise of its Article I powers. See Freytaa v. Commissioner, supra. The United States Tax Court, as established by Congress under the 1969 Act, sits as a district courtlike tribunal that "exercises a • portion of the judicial power of the United States * * *. * * * to the exclusion of any other function". Id_ at 891. This Court's judicial power allows the Court to decide cases without undue influence from either the executive or legislative branch. See id1 at 890-891; Roberts v. Commissioner, 175 F.3d 889 (11th Cir. 1999); see also Burns, Stix Friedman & Co. v. Commissioner, 57 T.C. 392, 395 (1971), wherein the Court stated: It is clear from the statutory language and the Senate committee report (S. Rept. No. 91-552, 91st Cong., 1st Sess., p. 302, 1969-3 C.B. 614) that Congress removed - 62 the Tax Court from the Executive Branch and established it as an article I court primarily for the purpose of reccgnizing its status as a judicial body and disposing of any problems that its status as an executive agency sitting in judgment on another executive agency might pose. This Cotrt's District Courtlike status means that the Court's decisior s are subject to review only by a Federal appellate court. See sec. 7482(a) ("The United States Courts of Appeals * * * stall have exclusive jurisdiction to review the decisions of the Sax)Court * * * in the same manner and to the same extent as decisions of the district courts in civil actions tried without a jury"). Appellate courts have repeatedly applied the law that precedec the 1969 Act to hold that the predecessors of the United States lat to deal with the substance of that dissent; instead, they foca on this Court's status as a Court, as a result of the amendmenta made by the Tax Reform Act of 1969 (TRA '69), Pub. L. 91-172, TRA '69, sec. 951, 83 Stat. 730. I am well aware of the text of ts legislative history, and the Congress' intentions. I am satisfied that there is nothing in the materials considered by or gelorated by the Congress in connection with TRA '69 that speaks to the issue of equitable recoupment; however, it is clear that the Congress did not intend to make this Court ah "Article III cour.'. F _1 ly, clearly, this Court is a court. Secor dly, this Court is not a Federal District Court. This Court is e Federal trial court, like the District Courts, and must abicle by the same Federal Rules of Evidence. However this Court han statutory authority to prescribe its own Rules of Practice and Procedure (sec. 7453), which in many respects are - 67 different from the Federal Rules of Civil Procedure. This Court has statutorily prescribed deficiency jurisdiction, which the District Courts do not have; the District Courts have refund jurisdiction, which this Court does not have (except where an overpayment is developed in a case that began as a deficiency case, or.in a "TEFRA partnership" or S corporation case). This Court has developed the "Lawrence doctrine", modified by the • "Golsen doctrine", as described in Lardas v. Commissioner, 99 T.C. 490, 493-495 (1992), which does not have a practical counterpart in the District Courts. This Court's burden of proof rules in deficiency cases differ in some respects from those applicable in refund cases in the District Courts. connection Helvering v. Taylor, 293 U.S. 507, 514 See in this (1935). As to other differences between this Court and the District Courts, see Commissioner v. Lundy, 516 U.S. 235, 244-245, 252 (1996). Thirdly, as to the critical dispute in the instant case, this Court and the District Courts differ in their statutory powers in such a way that equitable recoupment fits what the District Courts do (decide directly how. much, including interest, the Government must pay to the taxpayer, or vice versa) and does not fit what this Court does, redetermine the amount of the deficiency, if any, which is merely one factor in how much must be paid. - 68 E_oo uj;hly, nothing in the concepts of a "court", or a "court of law" makes equitable recoupment an essential characteristic of a coult, or of a court of law. My position remains that we are to resolve those matters which adject the amount of the estate tax deficiency to be set forth on the decision document we enter in the instant case. Equitab.€ recoupment does not affect any of the elements of the deficienc y9 jas statutorily defined, and so does not affect the decision we enter. Judge Beghe's concurring opinion dóes deal with th..e Court's deficiency jurisdiction, which is the only jurisdiction that brings the instant case before us. Judge Beghe's c oncurring opinion suggests a route by which the square peg of recoupment could be squeezed into the round hole of the statuton3 definition of deficiency.¹ Hou€ ver, several aspects of this suggested route remain to be paved. terms. Firstly, "deficiency" and "underpayment" are defined Eecs. 6211, 6664(a). They are not legal fictions. The amount, jf any, that a taxpayer may have to pay to the Government may wel.. be different from the amount of the deficiency or any underpa inent. Seccndly, the Supreme Court has recently indicated that, as to the 'Ex Court, the statute of limitations (the major ¹ T1is imagery is generally thought to have originated in Sidney :inith's reference to "a square person has squeezed himself into the round hole." Sketches of Moral Philosophy (1850). . - 69 - impediment that equitable recoupment is designed to circumvent) must be given a strict application, and the equities are unavailing. See Commissioner v. Lundy, 516 U.S. 235 (1996). Thus, this Court was barred from holding that Lundy overpaid his income taxes even if his claim for refund would have been timely in a District Court. See id_ at 251-253 (majority op.), 253-254, 263 (Thomas, J., dissenting). Also, Lundy lost even though it was clear Çþat Lundy and his wife had substantially overpaid their income taxes. See id. at 237. Lundy did not involve the staleness, missing documents, and faded memories that statutes of limitations are generally established to guard against. The majority of the SupremeCourt determined that there was no room for legal fictions suggested by Justices Thomas and Stevens, the Court of Appeals for the Fourth Circuit, or Lundy's counsel, to correct this obvious injustice, and the Government was permitted to hold onto the Lundys' overpaid taxes solely because of the text of the then-applicable statute of limitations. - Of course, Lundy's situation does not fit into the current mold of equitable recoupment. The relevance of Lundy to our discussion is the Supreme Court's focus on the details of statutory grants and limitations of power and jurisdiction, and that Court's reluctance to modify the strictness of the statute even to correct an obvious injustice. TAJd±, Judge Beghe's concurrence relies on the analysis of equitable recoupment in Justice Stevens' dissent in United States v. Dalm, 494 U.S. 596, 612-623 (1990) . Although much understanding may be gleaned from a distinguished jurist's dissent, the fact remains that the dissent is what the Supreme Court's majority rejected. COF E9 and WHALEN, M. agree with this dissent. --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Atax-court%3Ac3e02a0def6a2396. Public record. Not legal advice.