 An acquisition transaction may attract some form of taxation or it can be a tax pre-deal. Let's see how these two situations work. In tax-free transactions from the target firms shareholders point of view, it is seen that there is an exchange of old firms shares for the new firms share and both these shares are of equal value. So there is no tax implications because there is no gain or no loss situation. But if the new firms shares are sold by the acquiring firms shareholders at some subsequent period then there may be some implication for the taxes. In this type of tax-free transactions there is no option for revaluation of the target firms assets by the acquirer. Let's see an example where Bill owns SM Corporation with no debt, SM Corporation owns plant and machinery costing $80,000 but this $80,000 plant and machinery has a zero book value and its fair market value at present is $200,000. SA Steel company has bid $200,000 for all SMs outstanding stock. Now there is no tax on Bill's transaction because it is a no gain law, no loss deal. In this case the equal depreciation expense deduction is allowed to SA Steel but on this zero book value asset this option of using depreciation policy is not allowed. The second situation is the taxable transaction. Now assume that SA pays $200,000 in cash in this case Bill will be earning a taxable income which is the difference between the merger price of $200,000 and the initial contribution of $80,000. So the taxable income for the Bill is $120,000 and if SA Steel elects to write up the plant's value it will have two benefits. The first is the allowance available as the depreciation expense for each year to the tune of $20,000 because the plant has our normal life of 10 years. The second benefit will be that the $200,000 will be charged as a taxable income in the pocket of SA Steel and if SA Steel elects not to write up the value of the plant then the company will not allow to charge annual depreciation of $20,000 across the 10 years to the tune of total plant value of $200,000 and similarly there will be no recognition of income by $200,000. So what is the choice left with SA Steel in this particular case? The first implication is that the tax benefits from depreciation occur slowly over the time. This $200,000 machinery will be depreciated over the period of 10 years so tax implications will be over the period of 10 years in a slow order. On the other case there will be immediate recognition of the taxable income so no need is to write up the plant's value. What are the tax consequences in such both conditions? In taxable transactions write up is unallowed whereas in taxable transactions write up is not chosen. But the real tax differences between these two options is lying with the target firm's shareholders and these individual shareholders can defer taxes under the tax theory situation whereas they must pay taxes immediately under the taxable situation. So the tax pre-transaction has a better tax consequences among the between these two situations.