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Commissioner was not binding on the stockholders of the
corporation. The Court of Appeals for the Third Circuit
explained that a closing agreement does not bind "strangers to
the agreement". Id. at 271. The Court of Appeals for the Third
Circuit said that the shareholders are strangers to the
agreement, and neither are bound by nor can take advantage of the
agreement. We disagree that Phillips controls here because in
Phillips the shareholders were not transferees of the
corporation. The relationship between transferors and
transferees is not the same as between shareholders and the
corporation.
We conclude that a closing agreement under section 7121
binds a transferee of the party to the closing agreement, in a
manner analagous to the way res judicata binds a transferee to
a prior judicial decision in which the transferor was a party.
Our holding applies to petitioner to the extent he is either a
transferee or a successor transferee. Petitioner correctly
states that respondent has cited no case in which the Court
concluded that a transferee of a transferee is in privity with
the original transferor. Petitioner contends that petitioner is
not in privity with the Estate of Timothy Riffe and thus the
closing agreement does not apply to petitioner. We disagree
because, if it is established that petitioner is a transferee or
successor transferee, he is in privity with the transferor as a
matter of law. We see no basis for distinguishing between a
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