Equitable recoupment is a judicially created defense most commonly applied in legal cases in the federal and state tax systems of the U.S..[1][2] This doctrine can allow, under specific circumstances, the government to defeat a refund claim or a taxpayer to avoid an assessment on the basis of a past underpayment or overpayment that is outside the statute of limitations period.
[3] Although many of the applications are in cases involving tax law, it also has been applied to cases where revenue from the use of city property had been overpaid in terms of revenue due to the city, as was found in Grace v. City of Carlsbad.
[4] The specific conditions for equitable recoupment to be considered are: Source: [5][6] In Wisconsin Department of Revenue v. Van Engel, 230 Wis. 2d 607, 609 (Wis. Ct. App.
1999), the court had ruled that equitable recoupment can only occur when:[7] In Grace v. City of Carlsbad, 126 N.M. 95 (N.M. Ct. App.
Grace, applied the theory of equitable recourse in the hearing as a way to recover the overpayment, as a way around the expiration of the statute of limitations time period.