Taxing Times for Yahoo! and Its Alibaba Shares

Ominous rumblings from the IRS about a spinoff leave the company groping for a path forward.

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By Brian Womack and Richard Rubin and Alex Sherman

September 17, 2015 at 7:45 PM UTC

This article is for subscribers only.

This article is part of the September 21, 2015 issue of businessweek.

It might be the most expensive “no comment” in history. In February, Yahoo! asked the Internal Revenue Service to give advance approval for one part of its plan to create a new company to hold its $25 billion stake in Alibaba Group Holding. The spinoff was aimed at saving the estimated $9 billion in taxes Yahoo would owe if it sold the shares. In a Sept. 8 regulatory filing, however, Yahoo said the IRS had been noncommittal: The agency, it said, “was not ruling adversely on the request,” but it didn’t give its blessing.

“Clearly, it’s not the outcome that people were looking for,” says Colin Gillis, an analyst with BGC Financial. The IRS did nothing to allay investor concerns when a week later it outlined new misgivings about tax-free spinoffs. Since May, when the IRS raised concerns about such transactions, Yahoo stock has fallen about 30 percent, while Alibaba shares are down 23 percent.