Doctrine of Equitable Recoupment. — The doctrine of equitable recoupment means that when a refund of a tax illegally or erroneously collected or overpaid by a taxpayer is barred by the statute of limitations and a tax is being presently assessed against said taxpayer, said present tax may be recouped or set-off against the tax, the refund of which has been barred. The same thing would have been true where the Government has failed to collect a tax within the period of limitation and said collection is already barred, and the taxpayer has to its credit a tax illegally or erroneously collected or overpaid, whose refund is not yet barred, the Government need not make refund of all the tax illegally or erroneously collected, but it may set off against it the tax whose collection is barred by the statute of limitations.
This common law doctrine is applicable to the effect that a claim for refund barred by prescription may be allowed to offset unsettled tax liabilities ONLY to taxes arising from the same transaction on which an overpayment is made and underpayment is due. It finds no application where the taxes involved are totally unrelated.
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