Paul L. Caron

Monday, January 26, 2015

How Yahoo Might Sell Billions in Alibaba Stock and Pay No Taxes

YahooBloomberg,  How Yahoo Might Sell Billions in Alibaba Stock and Pay No Taxes, by Jesse Drucker:

Yahoo! on Tuesday is expected to reveal something most companies usually try to keep secret: how it plans to avoid a multibillion-dollar tax bill.

The Web portal has spent more than a year figuring out how to cash out a chunk of its $40 billion stake in China-based Alibaba. Typically, a U.S. company faces a federal tax bill of about 35 percent when it sells stock in another enterprise for cash.

Yahoo took a $3 billion tax hit last year when it sold about $10 billion in Alibaba shares. This time around, activist investors are leaning on the Sunnyvale, California-based company to be more savvy.

Marissa Mayer, Yahoo’s chief executive officer, probably will maintain at least part of the Alibaba holding to keep a finger in China’s fast-growing Web market. Were Yahoo to sell the entire stake, it could face a federal tax bill of as much as $14 billion.

Here are some of Yahoo’s options to avoid capital-gains tax, both legal:

  • Mimicking Malone ... [Yahoo] would spin off its stake into a new entity, which would borrow money and distribute the cash to the Internet company. ...
  • Channeling Buffett   Another option is to follow Warren Buffett’s lead, with what’s known in tax circles as the cash-rich split.

Tax | Permalink