47. 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 $ 10,000 $ 10,000 Receivables 15,000 15,000 Building 100,000 50,000 $ 50,000 Land 225,000 75,000 150,000 Total $350,000 $150,000 $200,000 Payables $ 18,000 $ 18,000 Mortgage* 112,000 112,000 Total $130,000 $130,000

*The mortgage is attached to the building and land.

Ernesto was asking for $400,000 for the company. His tax basis in the BLI stock was $100,000. Included in the sale price was an unrecognized customer list valued at $100,000.

The unallocated portion of the purchase price

($80,000) 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 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?

c. What are the tax benefits, if any, to Amy and Brian as a result of structuring the acquisition as a direct asset purchase?