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 The change - discussed by a U.S. Internal Revenue Service (IRS)
official in Washington - could complicate the plan announced by
Yahoo in January to spin off its 15 percent stake in Alibaba tax
free.
Yahoo said in a statement that it understood the IRS statement was
not specific to Yahoo's planned spin-off of its remaining stake in
Alibaba Group and its Small Business unit.
The company, which filed its pending ruling request for the Alibaba
spinoff with the IRS in the first quarter of this year, said the IRS
statement reflected no change in applicable law, and did not affect
previously filed ruling requests.
"Yahoo continues to work toward completing the planned spin-off in
Q4 2015," the company's spokesperson said in the statement.
The IRS is considering a change to its rules on spinoffs and may
suspend new requests, according to a statement from the Internal
Revenue Service. It said an official described the agency's process
at a legal conference on Tuesday.
The IRS said it had been asked whether it was considering a change
in its rules on "spin-offs in which the active trade or business of
the distributing corporation or the controlled corporation is small
in relation to its other assets."
Speaking at the legal conference, the IRS official said, "We are
thinking about it. But we have made no decisions."
The official added, "While we are studying these matters, ruling
requests that are already in house will continue to be handled in
the normal fashion for now, but this may change. Requests received
after this announcement may be held in abeyance as we study the
area, and ultimately we may decide not to entertain these ruling
requests at all."
Still, investors took the IRS comments as a threat to Yahoo's plan.
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"The concern is there may be road blocks to this event," said Colin
Gillis, BGC Partners analyst, referring to Yahoo's spinoff of the
Alibaba stake. Shareholders may also worry about the prospects for a
potential spinoff of the company's Japan business, Gillis said.
Almost 30 million shares in Yahoo changed hands between 3:40 p.m.
EDT and the 4 p.m. market close, out of the 41.9 million shares
traded in the full session. The trading volume was almost three
times Yahoo's 10-day average.
Shares of Alibaba closed up 1.3 percent at $88.21. Shares of Yahoo
fell $3.38 to $40.98.
"People are interpreting (the IRS change) as negative for Yahoo
right off the bat," Victor Anthony, analyst at Axiom Capital.
(Reporting by Yasmeen Abutaleb; Additional reporting by Kevin
Drawbaugh and Peter Henderson; Editing by Leslie Adler; Steve
Orlofsky and Anupama Dwivedi)
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