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's tax accounting balance sheet. The relevant information is summarized as follows:

	FMV			Adjusted Basis			Appreciation
Cash	$	8,000		$	8,000
Receivables		16,000			16,000
Building		100,000			50,000			50,000
Land		215,000			115,000			100,000
Total	$	339,000		$	189,000		$	150,000
Payables	$	20,000		$	20,000
Mortgage*		111,000			111,000
Total	$	131,000		$	131,000

* The mortgage is attached to the building and land.

Ernesto was asking for $414,000 for the company. His tax basis in the BLI stock was $130,000. Included in the sale price was an unrecognized customer list valued at $130,000. The unallocated portion of the purchase price ($76,000) will be recorded as goodwill.

Rather than purchase BLI directly, Amy and Brian will have their corporation, Spartan Tax Services (STS), acquire the business from Ernesto in a tax-deferred Type A merger. Amy and Brian would like Ernesto to continue to run BLI, which he agreed to do if he could obtain an equity interest in STS. As part of the agreement, Amy and Brian propose to pay Ernesto $207,000 plus voting stock in STS worth $207,000. Ernesto will become a 10 percent shareholder in STS after the transaction.

a. Will the continuity of ownership interest (COI) requirements for a straight Type A merger be met?

b. What amount of gain or loss does BLI recognize if the transaction is structured as a Type A merger? What amount of corporate-level tax does BLI pay as a result of the transaction, assuming a tax rate of 21 percent? (Leave no answer blank. Enter zero if applicable. Negative amounts should be indicated by a minus sign.)

c. What amount of gain or loss does Ernesto recognize if the transaction is structured as a Type A merger? (Leave no answer blank. Enter zero if applicable. Negative amounts should be indicated by a minus sign.)

e. What is the tax basis of each of the BLI assets held by STS after the merger?