SALT Report 2131 – The South Carolina Department of Revenue issued a procedural ruling that addresses claims for refunds. The purpose of the ruling is to establish the Department’s authority to grant refunds and to describe the circumstances in which an error may be corrected in situations where they would otherwise be barred by time limitations.
A setoff allows all items that involve the same tax in the same taxable period to be considered for an adjustment whether there has been an overpayment or underpayment of tax. A setoff does not allow the recovery of an underpayment or overpayment; rather it is a way to decrease the recovery amount claimed by the other party. For example, a setoff may be used by the Department to reduce or eliminate a refund claimed by a taxpayer.
The Doctrine of Equitable Recoupment
The doctrine of equitable recoupment allows a taxpayer or taxing authority to fix an error regarding the taxability of a transaction that occurred in a closed tax period by adjusting an amount involving the same transaction in an open tax period. The doctrine may only be used in conjunction with a tax dispute that is not barred by time limitations.
Like a setoff, the doctrine of equitable recoupment allows a refund claimed by a taxpayer or an assessment made by the Department to be reduced to zero, and does not allow a taxpayer to receive a refund or the Department to make any additional assessments.
Mitigation provisions allow an error to be corrected in a closed tax year even though the correction of the error is prohibited by another provision or rule of law. Unlike a setoff or the doctrine of equitable recoupment, the taxpayer may receive a refund under the mitigation provisions and the Department may make an additional assessment.
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