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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