In a taxable purchase of target stock with cash, the target firm does not restate (i.e., revalue) its assets and liabilities for tax purposes to reflect the amount that the acquirer paid for the shares of common stock. Rather, the tax basis (i.e., their value on the target's financial statements) of assets and liabilities of the target before the acquisition carries over to the acquirer after the acquisition.

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In a taxable purchase of target stock with cash, the tax basis of assets and liabilities of the target before the acquisition carries over to the acquirer after the acquisition.

In a Taxable Purchase of Target Stock with Cash, the Target