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judgment on the merits by a court of competent jurisdiction.
Commissioner v. Sunnen, supra; see Nevada v. United States,
supra; Federated Dept. Stores, Inc. v. Moitie, supra. The first
requirement is met here because the parties are identical in both
cases. The second requirement is met because Allnutt I resulted
in a final judgment on the merits.4 This is so because a
decision based on a party’s failure to state a claim on which
relief may be granted is a decision on the merits with full res
judicata effect. State Farm Mut. Auto. Ins. Co. v. Dyer, 19 F.3d
514, 518 n.8 (10th Cir. 1994); Winslow v. Walters, 815 F.2d 1114,
1116 (7th Cir. 1987).
The third requirement is that the cause of action, i.e., the
tax liability, in the second case must be the same as in the
prior case. Petitioner contends that the third requirement is
not met because net operating loss carryforwards at issue in the
instant case were not at issue in Allnutt I. Petitioner’s
argument is an attempt to sidestep well-settled principles of res
judicata. To prevail on a net operating loss carryforward claim,
petitioner must show that (1) he had a loss in a prior year;
i.e., that his deductions, losses, or credits exceeded his
taxable income in a prior year; and (2) the prior year’s loss may
be applied against income in a later year. Sec. 172. Obviously,
4 Petitioner does not dispute that the first and second
requirements are met. Petitioner is attempting in substance to
reopen closed years.
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