Coyote Ugly LLC pays $100,000 to Roadrunner Development Company to acquire a 10-year lease with an option for 5 more years in a swanky new mall downtown. Of the $100,000 paid, $20,000 can be reasonably allocated to the option. Coyote has developed new perfumes that it hopes to sell in the retail space. In addition, Roadrunner has agreed to improve the leased space to Coyote's specifications, up to the amount of $50,000. 

a. How should Coyote treat the $100,000 payment for federal tax purposes?

b. Describe the federal income tax treatment of the $50,000 expenditure for the leasehold improvements for both the landlord and the tenant.