Swallow, Inc., will purchase either the stock or the assets of Dane Corporation. All of the Dane stock is owned by Chuck. Bill Evans, Swallow’s CFO, and Chuck agree that Dane is worth $625,000. The tax basis for Dane’s assets is $400,000.

Write a letter to Bill advising him on whether he should negotiate for Swallow to purchase the stock or the assets. Bill’s address is 100 Village Green, Chattanooga, TN 37403.

Linda is the owner of a sole proprietorship. The entity has the following assets. Linda sells the business for $260,000 to Juan.

a. Determine the tax consequences to Linda, including the classification of any recognized gain or loss.

b. Determine the tax consequences to Juan.

c. Advise Juan on how the purchase agreement could be modified to produce more beneficial tax consequences for him.


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