Yahoo to Move Forward with Alibaba Spin Off Despite IRS Risks

Analysts and shareholders believe the company and its stake in Alibaba would be worth more separately, as long as the spinoff is not subject to tax incurred from selling the shares.

This Web search & media company had earlier said that the IRS denied their request for private ruling on whether spinning off their stake in the Chinese ecommerce giant was going to be tax free or not.

Yahoo is moving full steam ahead with its plans to spin off its Alibaba investment into a separate entity despite a few recent qualms over at the Internal Revenue Service. But an IRS official later indicated that any amendments would not apply retroactively, implying that Yahoo’s spin off could be tax free. In tandem, Yahoo’s market capitalization has also fallen about 46% to $26 billion.

According to analysts, Yahoo’s core business would be worth virtually nothing without its Asian assets.

Yahoo reiterated in Monday’s filing that it expects the deal to wrap up during the fourth quarter of 2015.

The U.S. federal tax collection agency along with the treasury department have acknowledged they are debating new rules for precisely this type of transaction, which may well be what is creating a sense of optimism at Yahoo that a decision may yet go its way.

The move was created to sidestep taxes and appease investors eager to tap into Yahoo’s rich stake in Alibaba.

Yahoo’s shares have declined a little more than 45pc this year.

After the split, Yahoo and Aabaco plan to operate independently, and neither will have ownership interest in the other.

Alibaba itself has been brought down by a confluence of factors both within the company and from broader issues related to weaknesses in China. The spinoff is the centerpiece of CEO Marissa Mayer’s plans to return cash to shareholders. But once that’s gone, what does Yahoo have left?

Shares were up 4.8% on Tuesday after Yahoo made the announcement to assuage the concern of investors about a tax hit that could be multibillion dollar from the spinoff.