There are four reported decisions in which the issue of COD income
has arisen in connection with an OIC agreement. The first
was Manhattan Soap Co. v. Commissioner,47 in which cancellation
of accrued and deducted manufacturer's excise taxes and interest
was held to be gratuitous and thus a nontaxable gift under the authority
of the Supreme Court's decision in Helvering v. American
Dental Co.48 The commercial gift doctrine was short-lived, 4 and it
is doubtful that decisions made under the authority of American
Dental have any continuing validity.5" The second decision was Denman Tire & Rubber Co. v. Commissioner," in which the government
compromised a 1941 liability for accrued and deducted
manufacturers' excess profits taxes and interest. The court noted
the demise of American Dental and held that the cancellation was
not a gift, but rather a collection of the best settlement obtainable
from a taxpayer in straitened financial circumstances. The court
found Denman to be solvent and upheld the assessment for COD
income.52
Next came Eagle Asbestos & Packing Co. v. Commissioner," in
which unpaid income and excess profits taxes were cancelled together
with interest on the tax debts. The Service invoked the tax
benefit rule and assessed taxes only for the cancelled interest, not
the cancelled principal. 4 The Court of Claims decided the case by
analyzing the OIC agreement as a contract, and held that the tax
benefit rule did not apply because the intent of the contracting
parties was to extinguish all obligations to the government.5 5 The
Eagle Asbestos court did not cite either Manhattan Soap or Denman,
perhaps because the earlier cases involved assessments on the
theory of COD income rather than the tax benefit rule.