Nature of the Case
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Facts
P was appointed administratrix of the estate of Harold Schrier in May 1975, at the request of Schrier's surviving brother, Clarence. P had been the decedent's loyal secretary for many years and Clarence wanted her to take charge of the affairs of the estate and receive some of the money that otherwise would belong to him. P received fees from the estate, approved by the probate court, of $30,000 in 1976 and $7,000 in 1977. She also received from Clarence two payments, $180,000 in 1976 and $133,813 in 1977. Clarence and his wife filed a gift tax return in December 1976 reporting the $180,000 payment as a gift to P, and P paid the gift tax of $18,675. D later assessed an additional $1,587 in penalties and interest with respect to the transfer. The Schriers paid the penalties and interest in 1977 and were reimbursed by P. But no gift tax return was filed with respect to the 1977 payment of $133,813. D determined that the payments from Clarence represented additional fees for P's services as administratrix of the estate and should have been reported as income. D asserted deficiencies along with additions to the taxes. P petitioned the Tax Court for a redetermination of the asserted deficiencies. P argued that the 1976 and 1977 payments from Clarence were gifts to carry out the wish of the decedent that she shares in the estate. P and D settled the case, with the parties agreeing to a stipulated decision that P owed income tax deficiencies of $10,416 for 1976 and $70,639 for 1977. No claim for a credit or recoupment of the gift tax paid by P was raised in the Tax Court proceedings. P filed an administrative claim for a refund of the $20,262 in gift tax, interest, and penalties paid with respect to the $180,000 in 1976. The claim was filed in November 1984. The IRC required P to file any claim for a refund of the gift tax by December 1979. D failed to act upon her claim and P suit in the United States District Court. D moved to dismiss the suit for lack of jurisdiction and summary judgment, arguing that the suit was untimely under the applicable statute of limitations. D's motion was granted. The court held that equitable recoupment did not authorize it to exercise jurisdiction over an independent lawsuit, such as this suit. The Court of Appeals reversed. It rejected the characterization of P's action as an independent lawsuit barred by the statute of limitations, reasoning that she could maintain an otherwise barred action for refund of gift tax because D had made a timely claim of a deficiency in her income tax based upon an inconsistent legal theory. D appealed.
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