IRS denies Yahoos tax spin-off

Yahoo is facing a big conundrum following the IRS refusal to grant a tax-free spin-off to the internet company’s $23 billion US stake in Alibaba Group.


Yahoo, however, remains optimistic stating the IRS did not rule out the possibility that the spinoff could still be completed without triggering taxes on the profits that the company has accumulated from its initial $1 billion investment in Alibaba, which runs some of China’s most popular online services.

It is thought the decision will put more pressure of CEO Marissa Mayer in trying to conclude more deals and trying boosting the company’s under performing stock.

Yahoo is still proceeding with its plans to place the Alibaba stake and a small-business service into separate company called Aabaco Holdings, while its board members “carefully consider” other options, according to the regulatory filing.

During Mayer’s tenure, Yahoo stocks have nearly double, largely due to Alibaba massive growth, however this has been reduce of late due to the slowdown of the Chinese economy. Yahoo’s stake is currently worth about $23 billion, down from $40 billion at the start of the year. Mayer’s has come under criticism of recently, with her inability to revive Yahoo’s revenue growth more than three years into her tenure. Furthermore, the news of the IRS set back has led to stocks of Yahoo falling early Wednesday morning.

Mayer was hoping to complete the spin by the end of this year, yet this will obviously become difficult to the IRS decision. The spinoff may now hinge on the opinion of Skadden, Arps, Slate, Meagher & Flom, the law firm assessing the tax implications of the deal. And Mayer will be under further pressure to improve revenue if Alibaba plans do not play out in the near term.