United States v. Dorothy Rosa Bowcut, Etc., of the Estate of Edward Mora, Deceased

This action is brought for recovery of $3,819.57 overpayment of taxes. The tax involved was an estate tax, recovery of which was barred by the three-year statute of limitations on filing claims with the Commissioner. 26 U.S.C., Internal Revenue Code of 1939, as amended, § 910, 26 U.S.C.A. By this action the taxpayer seeks to recoup the overpayment from sums claimed by the United States (and paid by the taxpayer) for past due income tax, interest and civil fraud penalty.

The principal question presented by the appeal is whether equitable recoupment can be had from funds found to have been fraudulently withheld by the taxpayer; whether the clean hands maxim will prevent recovery. From judgment for the taxpayer rendered by the District Court, 1959, D.C.Montana, 175 F.Supp. 218 , the United States has taken this appeal.

Dorothy Rosa Bowcut formerly was the wife of Edward Mora, a Montana resident, who died August 8, 1952. In her capacity as executrix of his estate, she is the taxpayer involved in this case. On June 11, 1953, a federal estate tax return was filed by the decedent’s estate and tax in the sum of $3,865.90 was paid. Subsequently the Commissioner of Internal Revenue…