Yahoo! Inc.’s plans to spin off its stake in Alibaba Group Holding Ltd. without incurring a multibillion-dollar tax bill were left in doubt after U.S. officials outlined new concerns over transactions that mostly are intended to cut tax obligations.
The Internal Revenue Service said Monday that it has misgivings about deals like the one Yahoo is contemplating. The new notice shows that the IRS is stepping up scrutiny of transactions in which the business being spun off contains mainly investment assets or when the active business is small. Shares of the Web company rose 2.4 percent to $31.04 at the close in New York on Tuesday, leaving them down 39 percent this year.
Under Chief Executive Officer Marissa Mayer, Yahoo is planning to spin off its 15 percent stake in China-based Alibaba, potentially saving about $9 billion. There’s been growing concern since May that Mayer won’t be able to complete the proposal, after the IRS initially raised red flags. The agency early this month declined to grant Yahoo an advance ruling blessing the deal. The IRS elaborated on its thinking Monday without mentioning Yahoo specifically.
U.S. Treasury officials and the IRS “are most concerned about transactions that result in the distributing corporation or the controlled corporation owning a substantial amount of cash, portfolio stock or securities, or other investment assets, in relation to the value of all of its assets and its qualifying business assets,” the IRS said.