EQUITABLE RECOUPMENT

The Supreme Court first approved an application of the doctrine of equitable recoupment in Bull v. United States, 295 U.S. 247 (1935). In a case of first impression, the Tax Court (Menard, Inc. v. Commissioner, 130 T.C. No. 4 (2008)) held that under the doctrine of equitable recoupment, it had jurisdiction to offset an income tax deficiency with a tax paid even if the court lacks subject matter jurisdiction over the tax so paid.

Section 6214(b) was amended by the Pension Protection Act of 2006 by adding the last sentence to subsection (b) authorizing the Tax Court to apply the doctrine of equitable recoupment to the same extent as it is available in the district courts and Claims Court. (This amendment confirms the jurisdiction of the court to apply equitable recoupment which had split the courts of appeal. See conflict between the Sixth and Ninth Circuits). The Commissioner had argued that the Tax Court cannot apply the doctrine unless it has jurisdiction over the tax, i.e. income, estate and gifts, and excise tax. The Commissioner argued that this group does not include the “hospital tax” imposed by sections 3101 and 31111, 

Rejecting this argument, the Tax Court stated as a matter of policy, that the 2006 Amendment should be read in such a manner so as to eliminate confusion and to provide “simplification benefits to both taxpayers and the IRS.”

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