Equitable recoupment

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Equitable recoupment is a judge-made defense used in U.S. tax cases. Under certain circumstances, it lets either the government defeat a refund claim or a taxpayer avoid an assessment for an underpayment or overpayment that falls outside the statute of limitations. While most often used in tax matters, it has also been applied in other revenue disputes, such as a case where a city received an overpayment of oil and gas royalties on its property (Grace v. City of Carlsbad). Courts set specific conditions for this defense, as discussed in cases like Wisconsin Dept. of Revenue v. Van Engel. In Grace v. City of Carlsbad, oil and gas operator Corinne B. Grace sought to use equitable recoupment to recover the overpayment after the statute of limitations had run.