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 $ 16,000 $ 16,000 Receivables 17,500 17,500 Building 102,000 51,000 51,000 Land 249,000 83,000 166,000 Total $ 384,500 $ 167,500 $ 217,000
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
| FMV | Adjusted Basis | Appreciation | ||||||
| Cash | $ | 16,000 | $ | 16,000 | ||||
| Receivables | 17,500 | 17,500 | ||||||
| Building | 102,000 | 51,000 | 51,000 | |||||
| Land | 249,000 | 83,000 | 166,000 | |||||
| Total | $ | 384,500 | $ | 167,500 | $ | 217,000 | ||
| Payables | $ | 24,300 | $ | 24,300 | ||||
| Mortgage* | 110,250 | 110,250 | ||||||
| Total | $ | 134,550 | $ | 134,550 | ||||
* The mortgage is attached to the building and land.
Ernesto was asking for $482,700 for the company. His tax basis in the BLI stock was $192,000. Included in the sales price was an unrecognized customer list valued at $132,000. The unallocated portion of the purchase price ($100,750) will be recorded as
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?
Cash paid
Liabilities assumed
Amount realized
Adjusted Basis
Gain or Loss Recognized
Tax Rate %
Tax
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?
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