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Equitable recoupment doctrine is a legal principle that grants a right to a creditor to recover debt. The debt diminishes to the extent s/he holds the debtor’s property in violation of the debtor’s legal rights.
Equitable recoupment doctrine allows a taxpayer to set off previously overpaid taxes due, even though the taxpayer is time-barred from claiming refund on the previous taxes. This doctrine also allows the government to set off those taxes that has not been collected from a taxpayer against the current claim for a refund, although the government is time-barred from collecting the previous taxes. Doctrine of equitable recoupment is applicable only if the statute of limitations has created an inequitable result. Equitable recoupment doctrine is a defensive remedy which helps in the mitigation of damages.
In Wisconsin Dep't of Revenue v. Van Engel, 230 Wis. 2d 607, 609 (Wis. Ct. App. 1999), Court ruled that equitable recoupment can only occur when the untimely refund claim to be set off against the timely assessment occurs within the same transaction or tax year. The court also held that the doctrine can only be used as a defense to an assessment made during the same transaction or tax period.