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that the issue of collateral estoppel was tried with respondent’s
implied consent. Rule 41(b)(1).
C. Collateral Estoppel
We now consider whether respondent is collaterally estopped
from asserting that petitioner had reason to know of the
substantial understatement. Petitioner contends that our holding
in Pierce I, that the Pierces were not negligent and they
reasonably relied upon their accountant/return preparer, is
tantamount to finding or holding that petitioner had no reason to
know of the understatement for purposes of section 6015(b)(1)(C).
The doctrine of collateral estoppel is intended to preclude
parties from litigating issues that were necessarily decided in a
prior suit. Johnston v. Commissioner, 119 T.C. 27, 33 (2002).
In Peck v. Commissioner, 90 T.C. 162, 166 (1988), affd. 904 F.2d
525 (9th Cir. 1990), this Court, implementing the factors
established by the Supreme Court in Montana v. United States, 440
U.S. 147, 155 (1979), established five conditions preliminary to
the factual application of collateral estoppel:
(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.
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