Yahoo CEO Marissa Mayer is making a big gamble with the company’s $22 billion stake in Chinese e-commerce behemoth Alibaba. The U.S. Internet company said in a filing with SEC that its board has authorized the proposed spinoff. Mayer has been telling shareholders for months that Yahoo was working on an elaborate plan to spin off its Alibaba stake into a new entity without incurring any taxes.

Yahoo To Go Ahead With Alibaba Group Holding Ltd Stake Spinoff

Yahoo to complete the Alibaba stake spinoff in Q4

Earlier this month, the Internal Revenue Service (IRS) refused to clarify whether the spinoff of Alibaba stake will be tax-free. It has made Yahoo’s spinoff plan a bit riskier. The Web search company said in a regulatory filing that the spinoff will be subject to certain other conditions such as the receipt of a legal opinion on the tax-free treatment of the deal.

Yahoo currently owns 384 million shares of Alibaba. Marissa Mayer said the company aims to complete the spinoff by the end of the fourth quarter. The value of Yahoo’s stake in Alibaba has declined to about $22 billion from $40 billion at the beginning of this year. In tandem, Yahoo’s market capitalization has also fallen about 46% to $26 billion.

Yahoo confident of tax-free spinoff

Yahoo and its tax experts are confident that the spinoff plan would pass the legal hurdles and be tax-free. But if IRS challenges the spinoff in a future audit, Yahoo shareholders could face a multi-billion dollar tax bill. Analysts believe that the core Yahoo is worth almost nothing without its stakes in Alibaba and Yahoo! Japan. Investors are closely following the company’s spinoff plans.

Alibaba stock has tumbled more than 50% since its November 2014 peak of $120. Trading restrictions on as many as 1.6 billion Alibaba shares ended last week, allowing the company executives and early investors to offload their shares. Yahoo acquired 40% stake in Alibaba in 2005 by paying $1 billion. Analysts believe Yahoo and its stake in Alibaba will be worth more separately if the proposed spinoff is tax-free.