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different cause of action involving a party to the prior
litigation.” Montana v. United States, 440 U.S. 147, 153 (citing
Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326 n.5 (1979)). In
Peck v. Commissioner, 90 T.C. 162, 166 (1988), affd. 904 F.2d 525
(9th Cir. 1990), we set forth the following prerequisites for
application of collateral estoppel involving a factual dispute:
(1) The issue in the second suit must be identical
in all respects with the one decided in the first suit.
* * *
(2) There must be a final judgment rendered by a
court of competent jurisdiction. * * *
(3) Collateral estoppel may be invoked against
parties and their privies to the prior judgment. * * *
(4) The parties must actually have litigated the
issues and the resolution of these issues must have
been essential to the prior decision. * * *
(5) The controlling facts and applicable legal
rules must remain unchanged from those in the prior
litigation. * * *
[Citations omitted.]
A State court holding may form the basis for collateral estoppel
in this Court if the use of collateral estoppel is allowed in the
State’s courts. See Bertoli v. Commissioner, 103 T.C. 501, 507-
508 (1994). The offensive use of collateral estoppel is
permitted in California. See Imen v. Glassford, 247 Cal. Rptr.
514 (1988).
We consider here two California proceedings involving
petitioners’ family, Magna Carta, and the trust. The first,
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