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(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. [Peck v. Commissioner, supra at 166-167;
citations omitted.]
These prerequisites are not met in the instant case. No
legal proceeding has ever addressed, much less established, that
petitioner is entitled to the Schedule C deductions claimed for
1997, 1998, and 1999. While petitioner has litigated a previous
tax year, resulting in Megibow v. Commissioner, T.C. Memo. 1998-
455, with respect to 1993, that proceeding provides neither a
legal nor a factual basis for applying collateral estoppel here.
From a legal standpoint, income taxes are levied on an
annual basis, such that each year represents a new liability and
a separate cause of action. Commissioner v. Sunnen, 333 U.S.
591, 598-600 (1948); Fla. Peach Corp. v. Commissioner, 90 T.C. at
682. Given this principle, collateral estoppel would not operate
to establish entitlement to deductions in one year based merely
on an allowance of similar deductions in a different year or
years. See Barmes v. Commissioner, T.C. Memo. 2001-155
(rejecting attempts to apply collateral estoppel to depreciation
deductions based on a prior litigated tax year), affd. 89 AFTR 2d
2002-2249, 2002-1 USTC par. 50,312 (7th Cir. 2002); see also
Adolph Coors Co. v. Commissioner, 519 F.2d 1280, 1283 (10th Cir.
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