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TAX TRENDS




           Equitable recoupment: The trust’s   tax liability. Absent that defect, could   or a levy. The limitation period was
         second alternative argument was that the   the trust have prevailed on its mitigation   tolled three times between 1994 and
         doctrine of equitable recoupment would   argument? Regarding the mitigation pro-  2009 by Weiss’s subsequent bankrupt-
         entitle it to the claimed refund. Equitable   visions of Secs. 1311 through 1314, the   cies. This resulted in a new expiration
         recoupment is an equitable remedy for   Tax Court stated in Bolten, 95 T.C. 397   date for the statute of limitation on col-
         situations in which a single transaction,   (1990), that they were:   lecting the taxes: July 21, 2009.
         item, or taxable event has been taxed                                 On or about Feb. 13, 2009, the IRS
         under two inconsistent theories. The Tax   designed to prevent a windfall, in   mailed Weiss a Final Notice — Notice
         Court has held that a claim of equitable   specified circumstances, either to the   of Intent to Levy and Notice of Your
         recoupment requires that (1) the refund   taxpayer or to the Government arising   Right to a Hearing, which informed
         for which recoupment is sought by   out of the treatment of the same item   Weiss that the IRS intended to levy his
         way of offset is barred by time; (2) the   in a manner inconsistent with its erro-  unpaid taxes for the years 1986 to 1991
         time-barred offset arises out of the same   neous treatment in a closed year. Thus,   and that he had an opportunity to re-
         transaction, item, or taxable event as the   provision is made to correct an error in   quest a Collection Due Process (CDP)
         overpayment or deficiency before the   the closed year where, for example, the   hearing. The notice, although express-
         court; (3) the transaction, item, or taxable   same item was erroneously included   ing an intent to levy Weiss’s property,
         event has been inconsistently subject to   or excluded from income or where the   was not sufficient to make a levy, and,
         two taxes; and (4) if the subject transac-  same item was allowed or disallowed   thus, the statute of limitation continued
         tion, item, or taxable event involves two   as a deduction in a barred year.  to run.
         or more taxpayers, there is a sufficiency of                          In response, Weiss timely requested
         interest between the taxpayers so that the   Richard J. O’Neill Trust, T.C. Memo.   a CDP hearing. Per Sec. 6330(e)(1),
         taxpayers should be treated as one.  2022-108                       his request suspended the statute of
           The Tax Court found that the trust’s                              limitation for the period during which
         equitable recoupment argument failed                                the hearing “and appeals therein” were
         procedurally again because the trust was   Procedure & Administration  “pending.” On the date of Weiss’s re-
         not the proper party to seek the refund.                            quest, at least 129 days remained in the
         It was not the proper party because the   28 years after assessment,    limitation period.
         deficiency upon which the trust based   IRS collection suit is still timely  IRS Appeals ruled against Weiss in
         its claim for recoupment arose from   In determining whether an IRS collec-  the CDP hearing. Weiss then sought
         deficiencies directly related to the O’Neill   tion action was filed timely, the Third   a review of the CDP hearing deter-
         estate’s taxes, not the trust’s.  Circuit held that the periods during   mination by the Tax Court, but after
           In addition, the Tax Court determined   which the running of the statute of limi-  five years of litigation, the Tax Court
         that the substantive requirements of   tation on collection was tolled included   affirmed the determination (Weiss, 147
         equitable recoupment were not met. The   the period between the time an appellate   T.C. 179 (2016)). Undaunted, Weiss
         court found that the IRS’s determination   court issued a mandate in the taxpayer’s   appealed the Tax Court’s decision to
         in the notice of deficiency that the trust   case and the Supreme Court denied his   the D.C. Circuit. The D.C. Circuit
         was not due a refund was based on the   petition for a writ of certiorari.  affirmed the Tax Court and turned
         disallowance of the trust’s claimed reduc-                          down his petition for a rehearing or a
         tion of tax liability pursuant to Sec. 1341   Background            rehearing en banc (Weiss, No. 16-1407
         and was not inconsistent with the trust’s   Charles Weiss did not pay any federal   (D.C. Cir. 5/22/18)). The district court
         time-barred liabilities for 2009 and 2010.   income tax from 1986 through 1991. In   entered a mandate on Aug. 23, 2018, at
         Also, those liabilities had no transactional   October 1994, however, Weiss    which point at least 129 days still re-
         connection with the IRS’s denial of the   late-filed his tax returns for those years.   mained on the original 10-year statute
         trust’s claim for refund under Sec. 1341.   He reported a liability of $299,202 on   of limitation. Weiss filed a petition for
                                           the returns, and later that month the   a writ of certiorari with the Supreme
         Reflections                       IRS assessed the amount due against   Court 62 days later, on Oct. 24, 2018.
         The Tax Court rejected the trust’s mitiga-  him for each of those years.  Forty days after that, the Court denied
         tion argument on procedural grounds:   By doing so, under Sec. 6502(a)(1), the   his petition.
         The refund claim was filed for the 2014   IRS triggered the 10-year statute-of-  At this point, the IRS could have
         tax year instead of 2009 and 2010, the   limitation period for collecting the un-  proceeded to levy Weiss’s property, but
         years in which it claimed it overpaid its   paid taxes through a court proceeding   instead, it initiated a collection action



         50  January 2023                                                                     The Tax Adviser
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