Amy and Brian were investigating the acquisition of a tax accounting business, Bottom Line Inc. (BLI)....

	FMV		Adjusted Basis		Appreciation
Cash	$	26,000	$	26,000
Receivables		20,700		20,700
Building		108,500		54,250		54,250
Land		281,250		93,750		187,500
Total	$	436,450	$	194,700	$	241,750

Payables	$	24,600	$	24,600
Mortgage*		138,750		138,750
Total	$	163,350	$	163,350

* The mortgage is attached to the building and land.

Ernesto was asking for $518,350 for the company. His tax basis in the BLI stock was $122,000. Included in the sales price was an unrecognized customer list valued at $162,000. The unallocated portion of the purchase price ($83,250) will be recorded as goodwill. (Negative amounts should be indicated by a minus sign.)

a. What amount of gain or loss does BLI recognize if the transaction is structured as a direct asset sale to Amy and Brian? What amount of corporate-level tax does BLI pay as a result of the transaction?

b. What amount of gain or loss does Ernesto recognize if the transaction is structured as a direct asset sale to Amy and Brian, and BLI distributes the after-tax proceeds [computed in part (a)] to Ernesto in liquidation of his stock?

c1. What are the tax benefits, if any, to Amy and Brian as a result of structuring the acquisition as a direct asset purchase?
c2. What is the tax basis in the assets received by Amy and Brian?

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ekkarill92 answered 1 month ago

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