Why does a deferred tax liability get created in purchase price allocation, and walk through the mechanic.

In a deal treated as a STOCK purchase for tax purposes, the target's TAX basis in its assets carries over unchanged, but for BOOK purposes you step assets up to fair value. That book/tax basis difference is a taxable temporary difference: book depreciation/amortization on the written-up assets will be HIGHER than the tax-deductible amount, so future book tax expense exceeds future cash taxes — a future tax obligation = a DTL. Mechanic: DTL = (asset write-up) × tax rate, recorded on the closing balance sheet. As the written-up assets are amortized/depreciated for books over time, the DTL reverses (draws down), which is a non-cash item on the cash flow statement. The DTL also increases goodwill at close because it reduces net identifiable assets.