Yahoo has decided it’ll spin off Alibaba—even without the blessing of the IRS

This is giving me such a headache.
This is giving me such a headache.
Image: AP Photo/Michel Euler
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Yahoo is going ahead with its plans to spin off about $22 billion in Alibaba shares—even if there’s a risk of a multibillion-dollar tax bill.

Since January, CEO Marissa Mayer had been selling to shareholders an elaborate restructuring plan that would allow Yahoo to offload its stake in Alibaba without incurring any taxes by transferring the shares to a new entity. But the US Internal Revenue Service (IRS) dealt a huge blow to Yahoo on Sept. 2 when it declined to issue a private-letter ruling regarding the plan. On Sept. 14, the IRS followed up by issuing a general guidance (paywall), which does not specifically mention Yahoo, expressing concerns of spinoffs that consist largely of investment assets and minimal operating businesses.

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. But there is a risk the transaction, expected to complete in the fourth quarter, could carry up to $9 billion in taxes.

The value of the Alibaba stake is now worth significantly less than when Mayer initially unveiled her spinoff plans. Then worth $40 billion, the value of Yahoo’s Alibaba holdings has declined dramatically, pushed lower by China’s market crash.