John M. and Rita K. Monahan - Page 10

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                    (5) The controlling facts and applicable legal                    
               rules must remain unchanged from those in the prior                    
               litigation.  [Citations omitted.]                                      
          See also Clark v. Bear Stearns & Co., 966 F.2d 1318, 1320 (9th              
          Cir. 1992) (highlighting conditions (1) and (4) above).                     
                    4.  Discussion                                                    
                    a.  Preliminary Matters                                           
               By order of this Court dated April 8, 1996, respondent's               
          motion for leave to file an amended answer to raise the                     
          affirmative defense of collateral estoppel in this case was                 
          granted.  Respondent now bears the burden of proving the                    
          applicability of that defense.  Rule 142(a).                                
               The jurisdictional competency of this Court in Monahan I is            
          not contested by the parties in this case.  In addition, decision           
          in Monahan I was entered by this Court on August 29, 1994, and              
          was affirmed on appeal without modification by the Court of                 
          Appeals for the Ninth Circuit on May 31, 1996.  Cf. Hudson v.               
          Commissioner, 100 T.C. 590, 593-594 (1993) (refusing to apply the           
          doctrine of collateral estoppel when an appellate court affirms a           
          trial court's judgment on different grounds).  No petition for              
          certiorari having been duly filed, decision in Monahan I has                
          become final under section 7481(a)(2)(A).  Lastly, there is                 
          complete identity of parties between Monahan I and this case.               
          Both petitioners and respondent were parties in Monahan I and are           








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