Fred Allnutt - Page 16




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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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