1. This question is designed to develop your ability to find given legislative, administrative, and judicial tax law sources and apply them to a fact situation.

Facts:

Jessa Williams was hired three years ago by the Ricor Corporation (Ricor) to serve as the President and Chief Executive Officer (CEO) for the company. As part of her employment contract, Ricor had agreed to purchase her residence at fair market value in the event the company decided to fire her. Last year, unsatisfied with her performance, Ricor fired her and purchased the residence for $650,000. Ricor immediately listed the house with a real estate agency. Soon after the purchase, the real estate market in the area experienced a serious decline, especially in higher-priced homes. Ricor sold the house this year for $495,000 and paid selling expenses of $15,000, resulting in a realized and recognized loss of $170,000 [$480,000 amount realized ($495,000 - $15,000) - $650,000 adjusted basis].

Required:

Find and read Code 1221, Rev. Rul. 82-204, 1982-2 C.B. 192, and Azar Nut Co. v. Comm., 91-1 USTC 50,257, 67 AFTR 2d 91-987, 931 F.2d 314 (CA-5, 1991) using Checkpoint. Then write a succinct response to the following question: What is the character (i.e., capital, ordinary, or 1231) of Ricors $170,000 loss? You are not required to use memorandum form, but you must cite to (and, unless plainly self-evident, explain the relevance of) all three of the tax law sources listed above using correct citation form (as illustrated throughout Chapter 2). (For the case, do not use the incorrect cite form listed at the top of the case in Checkpoint!) Your response should exceed no more than approximately one-half of the one-page limit described in instruction (4) on page 1. (Failing to adhere to this limit will result in a loss of points.) The analysis should be like item 1 on page 4.