Yahoo Inc (YHOO.O) said the U.S. Internal Revenue Service (IRS) had denied the company’s request for a private letter ruling on whether the spinoff of its stake in Alibaba Group Holdings Ltd (BABA.N) would be considered tax free.

Yahoo’s shares were down about 3 percent to $29.99 in extended trading on Tuesday. The shares fell as much as 15.8 percent earlier.

The IRS has, however, notified that it had not concluded whether the transaction would be taxable, Yahoo said in a regulatory filing. (

The board would continue to carefully consider the company’s options, including proceeding with the spinoff on the basis of an opinion of its counsel, Yahoo said.

Yahoo plans to spin off its stake in Alibaba into a public company along with Yahoo Small Business that provides domain names and local marketing.

Current rules make a spin-off tax free if the entity being separated has an active business.

However, likely changes to U.S. tax rules have raised concerns over the spinoff would be considered being tax free.

(Reporting by Abhirup Roy and Anya George Tharakan in Bengaluru; Editing by Sriraj Kalluvila)

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