Yahoo $23B Alibaba Spinoff To Go Forward Sans Tax-Free OK

Yahoo said the transaction is still on track to close by the end of the year, sending Yahoo’s shares up in after hours trading on Monday.

Yahoo Inc.’s bold plan to spin off more than $20 billion worth of shares in Alibaba Holding Group Ltd. without incurring a tax bill just got riskier.

Yahoo investors have long clamored for Yahoo to cash out its investment in Alibaba (and in Yahoo Japan) and give the proceeds back to shareholders. It added that it’s hoping the process will go without any hiccups.

But the US Internal Revenue Service (IRS) dealt a huge blow to Yahoo on September 8 when it declined to issue a private-letter ruling regarding the plan.

“Neither this ongoing guidance project nor the IRS’s decision not to rule with respect to the Aabaco spinoff transaction changes the current law applicable to the proposed spinoff”, Yahoo said in a filing, referring to the name of the corporate entity that will hold the shares after the spinoff.

The transaction is expected to be complete in the fourth quarter this year.

Yahoo shares of were down $1.53, or 5.25 percent, to $27.60, in regular trading.

The company said in a filing Monday that its board determined last Wednesday to pursue the plan.

Yahoo, expects this deal to be completed by December 31 has been trying to revive its advertising business by getting more users to its websites.

The IRS declined a request for a preliminary ruling that the way the spin-off is structured satisfies requirements for avoiding taxes on the multi-billion-dollar stake in Alibaba.

Chief Executive Officer Marissa Mayer, seeking to address doubts on Wall Street about how she’s managing the company’s assets, is aiming to spin off the roughly 15 percent stake in China-based Alibaba and potentially save about $9 billion in taxes.