Amy and Brian were investigating the acquisition of a tax accounting business, Bottom Line Incorporated (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 Tax Basis	Appreciation
Cash	$ 23,750	$ 23,750
Receivables	17,900	17,900
Building	118,500	59,250	59,250
Land	259,500	86,500	173,000
Total	$ 419,650	$ 187,400	$ 232,250
Payables	$ 26,200	$ 26,200
Mortgage*	144,750	144,750
Total	$ 170,950	$ 170,950

* The mortgage is attached to the building and land.

Ernesto was asking for $504,950 for the company. His tax basis in the BLI stock was $165,000. Included in the sales price was an unrecognized customer list valued at $170,000. The unallocated portion of the purchase price ($86,250) will be recorded as goodwill.

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 because 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?

\begin{tabular}{|c|c|c|c|} \hline Cash paid & $ & 504,950 & \\ \hline Liabilities assumed & & 170,950 & \\ \hline Amount realized & $ & 675,900 & \\ \hline Adjusted Basis & & 488,500 & \\ \hline Gain or Loss Recognized & $ & 1,164,400 & \\ \hline Tax Rate & & 34 & % \\ \hline Tax & $ & 395,896 & \\ \hline \end{tabular} Gain or loss recognized No tax benefits. Tax basis in the assets received equal to the assets' fair market value. Tax basis in the assets received equal to that of BLI. \begin{tabular}{|l|l|} \hline Cash & \\ \hline Accounts receivable & \\ \hline Building & \\ \hline Land & \\ \hline Customer list & \\ \hline Goodwill & \\ \hline Total & \\ \hline \end{tabular}