LO.3 Veronica is a key employee of Perdiz Corporation, an aerospace engineering concern E THI C S AND EQUI TY located in Seattle. Perdiz would like to establish an office on the east coast of Florida and wants Veronica to be in charge of the branch. Veronica is hesitant about making the move because she fears she will have to sell her residence in Seattle at a loss. Perdiz buys the house from Veronica for $420,000, its cost to her. She has owned and occupied the house as her principal residence for eight years. One year later, Perdiz resells the property for $370,000.

Nothing regarding the sale of the residence is ever reflected on Veronica’s income tax returns. Needless to say, Perdiz absorbs all of Veronica’s moving expenses. Do you have any qualms as to the way thesematters have been handled for income tax purposes?