Web Baker was hired three years ago by the Berry Corporation to serve as CEO for the company. As part of his employment contract, the corporation had agreed to purchase his residence at FMV in the event the company decided to fire him. Last year, Berry, unsatisfied with Webs performance, fired him and purchased the residence for $350,000. Berry 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. Berry sold the house this year for $270,000 and paid selling expenses of $12,000.Ted Jones, the Financial Vice-president of the corporation, has requested your firm, McCormick and Olsen, to provide advice as to how the Berry Corporation should treat the $92,000 loss.

Marjorie Price, the tax manager at McCormick and Olsen, has asked you to write a letter to Ted Jones that addresses his request. Marjorie has also requested that you clearly explain the tax impact of the loss on their return for the year. She has asked that you include appropriate quotations in your letter to Mr. Jones that relay this sensitive news, butand more importantly--substantiate a defensible position with the IRS. The quotations you provide should be from primary authorities; these quotations should be accompanied by proper citations. At a minimum, you are to quote one code section, one revenue ruling, and one court case in your response letter to Ted Jones.

Consider the following items to be a partial list of research aids:

• 162
• 165
• 1001
• 1221
• Rev. Rul. 82-204, 1982-2 C.B. 192
• Azar Nut Co. v. CIR, 67 AFTR 2d 91-987

The purpose of this assignment is to provide you with experience in reading and understanding IRC sections, revenues rulings, and court cases. In addition, this letter allows you to demonstrate your ability to clearly and accurately discuss the technical complexities of tax law with respect to a particular situation from private industry to a layperson who might not have the requisite knowledge of technical terms and legalese.