A technical cloud hangs over the new OIC program, however. In
the past, the Service has insisted that discharge of a tax debt
through an OIC agreement gives rise to cancellation of indebtedness
(COD) income, or to income under the tax benefit rule. Reported
case law reflects both theories, but the results are in conflict.
In its most recent decision, Yale Avenue Corp. v.
Commissioner,2 the Tax Court upheld an assessment for COD income,
albeit indirectly.' The Service has not indicated any change
in its position since Yale Avenue. If OIC relief is taxable, the goals
of the new program would be frustrated and the program itself endangered.
It would be futile for the Service to impose a second
uncollectible tax as the price for relief from the first. Moreover,
from the taxpayer's perspective the new tax debt would contradict
the promise of a fresh start.