As a new practicing attorney, Clarence Darrow, a sole proprietor, purchased on April 1, 2020, an existing law office practice including land, building, furniture and fixtures, and intangibles. The purchase price is $2,500,000 and the fair market value of the land, building, furniture and fixtures, and listed intangibles is $2,000,000. Mr. Darrow incurred $100,000 of broker, attorney and accountant fees in completing the transaction.

a. Discuss the method used to allocate the purchase price of business assets in an asset acquisition, to record original tax basis on acquisition, where the purchase price of the land, buildings, tangible personal property and stated intangibles exceeds the fair market value of the assets.

b. Describe and list intangibles that may be recorded for tax purchase by the purchaser.

c. Describe how each asset is to be expensed for tax purposes, how adjusted tax basis is computed, describe various available cost recovery methods, and discuss the effect of various available cost recovery methods elections on alternative minimum tax and on recapture taxes.

d. Describe the income tax treatment of the costs incurred in completing the transaction.

e. Discuss the tax implications of a buyer and seller of a business allocating portions of the selling price to goodwill or a covenant not to compete.