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If collateral estoppel applies, the judgment in a prior action
precludes relitigation in a second action of issues actually
litigated and necessary to the outcome of the first action.
Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326 (1979); Meier v.
Commissioner, 91 T.C. 273, 282 (1988).
Collateral estoppel applies if: (1) The issues presented in
subsequent litigation are in substance the same as those decided
in earlier litigation; (2) there is a final judgment rendered by
a court of competent jurisdiction in the earlier litigation; (3)
the doctrine is invoked against a party (or their privies) to the
prior judgment; (4) the parties actually litigated the issues and
the resolution of these issues was essential to the prior
decision; and (5) the controlling facts and applicable legal
principles are unchanged from those in the prior litigation.
Brotman v. Commissioner, 105 T.C. 141, 148 (1995); Peck v.
Commissioner, 90 T.C. 162, 166-167 (1988), affd. 904 F.2d 525
(9th Cir. 1990). Collateral estoppel does not apply if “special
circumstances” are present which give reason to doubt the quality
or fairness of procedures followed in prior litigation. Montana
v. United States, 440 U.S. 147, 162 (1979); Meier v.
Commissioner, supra at 291-292. The parties agree that
requirements (2), (3), and (5) are met.
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