Yahoo Says Alibaba Spinoff is On Track, Shares See Relief

Shares of Yahoo! Inc. YHOO are higher in premarket trading following a 7.6 percent drop yesterday. The drop - and subsequent rally - are wholly related to whether Yahoo can spin off its stake in Alibaba Group Holding Ltd BABA without taking a large tax hit. The current plan, announced in January, would see the company divest its Alibaba stake by spinning off the company into a separate entity.

Yesterday, however, a senior technical reviewer at the IRS's Office of Associate Chief Counsel said that the agency was considering changes to rules concerning spinoffs. The representative said, "The issue comes down to whether we've dropped a hot-dog stand or a lemonade stand into a business that is primarily publicly traded stocks, cash and other wonderful things that I call appreciated property," according to the Bloomberg report.

This morning, Yahoo responded and said that it does not expect the IRS' plans to impact its Alibaba stake. The stock was last up 2.8 percent to $42.15. Here is the full Yahoo statement:

"An IRS representative stated Tuesday that the IRS plans to study its rules for issuing private letter rulings regarding the active trade or business requirement in spin-off transactions and will hold off processing new ruling requests. Yahoo understands that the IRS's statement is not specific to Yahoo's planned Q4 2015 spin-off of its remaining stake in Alibaba Group and Yahoo Small Business, reflects no change in applicable law, and does not affect previously filed ruling requests. Yahoo filed its pending ruling request with the IRS in Q1 2015. Yahoo continues to work toward completing the planned spin-off in Q4 2015."