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U.S. Supreme Court

Rothensies v. Electric Storage Battery Co., 329 U.S. 296 (1946)

Rothensies v. Electric Storage Battery Co.

No. 48

Argued November 15, 18, 1946

Decided December 16, 1946

329 U.S. 296


From April 1919 to April 1926, a taxpayer paid excise taxes on certain sales and deducted the tax from income before calculation of its income tax. In July 1926, it filed a claim for refund of the excise taxes paid between 1922 and 1926 (refund of those paid earlier being barred by the statute of limitations), brought suit, obtained judgment, and received settlement in 1935. The Commissioner treated the refund as income for 1935 and assessed additional income and excess profits taxes. The taxpayer paid the deficiency so assessed and sued for a refund, contending that the refund of the excise taxes was not income, but that, if it were so considered, the taxpayer should be permitted, as against the additional tax caused by its inclusion, to recoup the amount of the barred excise taxes which it had paid between 1919 and 1922.


1. The refund of the excise taxes was properly assessed as income for 1935. P. 329 U. S. 298.

2. Refund of the excise taxes improperly paid between 1919 and 1922 being barred by the statute of limitations, they may not be recouped in this proceeding against the income tax liability for 1935. Pp. 329 U. S. 299-303.

Page 329 U. S. 297

(a) Recoupment is in the nature of a defense arising out of some feature of the transaction upon which a plaintiff's action is grounded. It does not allow one transaction to be offset against another, but only permits a transaction which is made the subject of a suit by a plaintiff to be examined in all its aspects, and judgment to be rendered that does justice in view of the one transaction as a whole. P. 329 U. S. 299.

(b) Bull v. United States, 295 U. S. 247; Stone v. White, 301 U. S. 532, distinguished. P. 329 U. S. 300.

(c) To give the doctrine of recoupment the breadth here claimed would seriously undermine the statute of limitations in tax matters. P. 329 U. S. 302. 152 F.2d 521, reversed.

A taxpayer sued to recover income and excess profits taxes assessed and paid on a refund in 1935 of excise taxes erroneously paid between 1922 and 1926, claiming that the refund was not income and that, if it were, he should be permitted to recoup other excise taxes erroneously paid between 1919 and 1922. The District Court gave judgment for the taxpayer. 57 F.Supp. 731. The Circuit Court of Appeals affirmed. 152 F.2d 521. This Court granted certiorari. 327 U.S. 774. Reversed, p. 303.

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