Below are info on one of the firm's client. Your Senior Manager has asked you to draft an internal memo discussing the implications of the client. Make sure to discuss Issue, Conclusion, Analysis. The manager has also provided you with some sources to start your research for the client.

John Patrick was hired six years ago by the XOEye Corporation to serve as the CEO for the company. As part of his employment contract, the corporation had agreed to purchase his residence at FMV in event the company decided to fire him. Last year, XOEye, unsatisfied with Patrick's performance, fired him and purchased the residence for $350,000. XOEye 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. XOEye sold the house this year for $270,000 and paid selling expenses of $12,000. How should the XOEye Corporation treat the $92,000 loss?

A partial list of sources is:

1221

Rev. Rul. 82-204, 1982-2 C.B. 192

Azar Nut Co. v. CIR, 67 AFTR 2d 91-987, 91-1 USTC 50,257 (5th Cir. 1991)