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estoppel may be invoked against the 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; and, (5) the controlling facts
and applicable legal rules must remain unchanged from those in
the prior litigation.
Here, petitioners’ tax liability was incorporated into their
plan for reorganization on the basis of respondent’s uncontested
proof of claim, which in turn was based on petitioners’ tax
returns filed during the bankruptcy proceeding. As we discussed
above, there is no indication that the merits of petitioners’ tax
liability were litigated in the bankruptcy proceeding or that the
plan was confirmed on the bases of the underlying merits of the
tax claims. Because the bankruptcy court did not enter a
judgment on the bases of the merits of the tax claim, respondent
is not precluded from determining a tax deficiency. See Limited
Gaming of Am., Inc. v. Commissioner, T.C. Memo. 2001-273.
To reflect the foregoing,
An appropriate order will
be issued.
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Last modified: May 25, 2011