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Yahoo Files to Spin Off Alibaba Stake

Yahoo on Friday filed regulatory documents with the U.S. Securities and Exchange Commission to spin off its 15 percent stake in Chinese e-commerce company Alibaba Group Holding Ltd. in the fourth quarter of this year.

The spinoff, originally announced in January, is the most tax-efficient way of giving the tech giant’s investors the proceeds from its 384 million shares of Alibaba, currently worth about $32 billion.

Dubbed Aabaco Holdings, the offshoot will combine Yahoo’s ownership of the e-commerce company with a small-business services division, and is intended to transfer the value of that stock to shareholders without incurring capital-gains tax of up to $10 billion.

Under federal rules, such spinoffs must include a small operating division, not just stock holdings, to ensure it’s a real business and to qualify for tax-free status. But an Internal Revenue Service (IRS) official warned in May that the government was reviewing the rules to create a minimum size for the active business. At the time, Yahoo said it understood that any changes would not apply to previously filed requests, such as its Alibaba stake spinoff.

In Friday’s SEC filing, however, Yahoo cautioned it might cancel the transaction if it can’t get written assurance from the IRS that it will be tax-free for shareholders.

Few other details were disclosed about the new company, with no mention of its leadership or which exchange it would trade on. Yahoo is set to announce its second-quarter financial results on Tuesday.