Prior to 1939 whenever a corporation paid less than the face amount of an obligation in full satisfaction thereof, taxable income was realized to the extent of the difference. In 1939 paragraph (9) was added to Section 22 (b) of the InternalRevenue Code. Therein it was provided that there should not be included in the taxable income of a corporation the amount of income attributable to the discharge of any indebtedness as evidenced by a security, provided at the time of such discharge the corporation was in an unsound financial condition. In orderto obtain the relief provided, the corporation had to consent to a reduction in the basis of its assets. In 1942, Congress eliminated the proviso relating to unsound financial condi-tion and made the section applicable regardless of the corporation's financial condition. Subsequent to 1942 the relief provided by Section 22(b) (9) was available to all corporations and was applicable to all indebtedness evidenced by a security.
Note, Discharge of Corporate Indebtedness at Less than Face Value under the Internal Revenue Code, 1 Clev.-Marshall L. Rev. 58 (1952)