Amy and Brian were investigating the acquisition of a tax accounting business, Bottom Line Inc. (BLI). As part of their discussions with the sole shareholder of the corporation, Ernesto Young, they examined the company&#39;s tax accounting balance sheet. The relevant information is summarized as follows:

 FMV Adjusted Basis Appreciation Cash \$ 16,250 \$ 16,250 Receivables 23,600 23,600 Building 142,000 71,000 71,000 Land 228,000 76,000 152,000 Total \$ 409,850 \$ 186,850 \$ 223,000 Payables \$ 24,700 \$ 24,700 Mortgage* 154,500 154,500 Total \$ 179,200 \$ 179,200

* The mortgage is attached to the building and land.

Ernesto was asking for \$495,400 for the company. His tax basis in the BLI stock was \$119,000. Included in the sales price was an unrecognized customer list valued at \$193,000. The unallocated portion of the purchase price (\$71,750) 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?

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