Despite uncertainty, Yahoo plans to move forward with big Alibaba spinoff

September 28, 2015, 10:13 PM UTC
Yahoo is bringing back its iconic billboard along San Francisco's Interstate 80.
Courtesy of Yahoo

Yahoo will proceed with the spinoff of its massive stake in Chinese e-commerce juggernaut Alibaba even after the IRS declined to guarantee that it would be tax-free, according to a Yahoo regulatory filing today.

As reported earlier this year, Yahoo announced plans to spin off its big investment in Alibaba amid pressure from Wall Street to return money to shareholders. Yahoo’s plan is to put the shares in an independent public company called Aabaco Holdings, which would control Yahoo’s nearly 384 million Alibaba shares (BABA) worth $22 billion at current market value.

Under the plan, Yahoo would no longer own the Alibaba stake and the value would be distributed among Yahoo shareholders. With the spin out, Yahoo is hoping to avoid a multi-billion dollar tax bill, which is why the IRS approval is important.

But the Web portal recently revealed that the IRS has declined to rule on the legality of the maneuver, signaling that the government may be leaning against approving the strategy.

In today’s filing, Yahoo said that on September 23, the company’s board authorized that the spinoff would not hinge on the IRS’ approval. The spin-off would be subject to other conditions, said the company, including final approval by Yahoo’s board, and receipt of a legal opinion that would outline how that transaction would be tax-free under U.S. federal tax laws.

Also revealed in the filing was that on September 14 the IRS issued a formal “no-rule” policy regarding transactions similar to the Aabaco spin-off and that the IRS and Treasury Department are studying the possibility of new rules for these types of spinoffs in the future. Yahoo has said previously that the Alibaba spinoff would take place in the fourth quarter.

Yahoo’s shares (YHOO) rose 3% in after hours trading.

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