Providing a home as compensation.

[Account Closed]

Recently the City of Kyle, Texas decided to provide the use of a $550,000 house as part of the compensation for their City Manager.  You can read about it in the link below.

http://thekyletxreport.blogspot.com/

What I am wondering is...  How would that be taxed for income?  My guess would be he would have to pay taxes on whatever the fair market rent of the property would be.  Is there a rule that would allow him to only pay taxes on what the actual cost was to the city?  If so, I think everyone with a corporation might need to take part of the income in the form of housing.