Millard D. and Marjorie C. Thomas - Page 6

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               Mr. Thomas’s Notice of Pension Award, dated May 22, 1996,              
          provided that Mr. Thomas was entitled to a monthly benefit level            
          of $483, and was awarded a monthly disability pension of $498,              
          retroactive to March 1, 1996, which was the “Effective Date”.               
               Petitioners have never included Mr. Thomas’s disability                
          pension in their gross income.  In 1999, respondent examined Mr.            
          Thomas’s Federal income tax return and accepted his position that           
          his disability pension benefits were nontaxable.5  In both 2002             
          and 2003, Mr. Thomas received $5,976 in disability pension                  
          benefits, which respondent now contends are includable in                   
          petitioners’ gross income.                                                  

               5In Megibow v. Commissioner, T.C. Memo. 2004-41, affd. 161             
          Fed. Appx. 98 (2d Cir. 2005), this Court observed:                          
                    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. [678] 682                    
               [(1988)].  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. 1975) (rejecting an attempt                 
               to apply collateral estoppel even though the exact                     
               issue was raised in a prior Tax Court proceeding but,                  
               because the Commissioner abandoned the issue during the                
               litigation, no judicial determination or findings were                 
               made), affg. 60 T.C. 368 (1973).                                       

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