Yahoo will spin off Alibaba shares and risk billions in tax

The news comes a couple of weeks after the IRS declined to give its advanced blessing to the transaction in a so-called “private letter ruling” that Yahoo had requested.

Yahoo, on Monday, said that it was going to proceed with the spinoff of its stake in the Alibaba Group Holding though the IRS hasn’t ruled on if the transaction is tax free or not.

In a filing today (Sept. 28) with the US Securities and Exchange Commission, Yahoo said its board authorized the company to continue with the proposed spinoff, which it’s hoping goes without a hitch.

At the same time, the IRS did not indicate for sure that the transaction would be taxable, according to the California-based Internet pioneer.

The value of the stake is slightly less than Yahoo’s market capitalization of about $25.98 billion based on 941 million shares outstanding on July 31 and Monday’s close.

Yahoo said in the filing that it expected the spin-off to be completed in the final quarter of this year, but said it still hinged on final approval by the company’s board. Alibaba’s shares have fallen by the same amount in 2015 as well.

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

In other words, that spinoff better happen soon or Uncle Sam might have a big tax bill for the struggling Web pioneer and its shareholders.

A tax-free deal, which will be spun off into a separate company along with its existing small business unit, would stand to return considerably more to shareholders.

As of Monday’s close, Yahoo’s shares have declined a little more than 45 percent this year.

When the spinoff was first announced in January, those millions of Alibaba shares translated to roughly $40 billion with the promise the valuation would be bumped up to $50 billion when the deal is done.