According to Tax Notes,(see I.R.S. Announces Spinoff Ruling Pause; Yahoo Implicated, by Amy Elliott) the I.R.S. will announce that it “may hold in abeyance any new private letter ruling requests involving some Sec. 355 tax-free spin-off active trade or business requirement questions while it studies how much active trade or business is enough.”
While we were writing this, Bloomberg confirmed and added more detail.
Isaac Zimbalist, senior technician reviewer at the IRS’s Office of Associate Chief Counsel (Corporate), said on Tuesday the government agency is considering changes to rules concerning spinoffs. The IRS will hold in abeyance any ruling requests received starting today as the issue is studied, Zimbalist said at a D.C. Bar Association event.
Ruling requests already received by the IRS will continue to move forward, but that is subject to change.
“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,” Zimbalist said.
Yahoo’s plan is to put Yahoo’s holding in Alibaba into a newly registered firm called SpinCo, which will own all of Yahoo’s 384 million Alibaba shares that were valued at $40 billion at the time, as well as a smaller, ancillary legacy business. Shares in SpinCo will then be distributed to existing Yahoo shareholders as a separate public company, according to the plan.
This could be a major setback for Yahoo and Marissa Mayer in their quest to realize maximum value for the company’s Alibaba(and Yahoo Japan) stake.
Disclosure: The author holds shares of Yahoo