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Yahoo! Inc. (NASDAQ:YHOO)’s Tax Struggles In Alibaba Spin-Off Continue

Written by on September 10, 2015

It’s not yet certain whether the Internal Revenue Service (IRS) will go along with Yahoo’s plans to spin-off its Alibaba shares into a separate company but Yahoo! Inc. (NASDAQ:YHOO) investors appear uncertain about Yahoo’s tax-saving stratagems. Yahoo shares have lost 30 percent since May as the maneuvers continue and Yahoo recently announced that the IRS declined to issue a ruling on its request.

Tax saving plans are not a political football yet as the U.S. economy is doing reasonably well at the moment with unemployment and inflation under control. Last time the U.S. Congress was interested in companies avoiding taxes, it targeted large companies such as Apple and General Electric (GE) who prefer to keep their substantial export earnings abroad rather then bring the money into the U.S. and pay a high rate of tax.

There’s no longer any urgency in either Congress or the Obama administration about what to do regarding the cash stashed abroad by companies including Apple. If Yahoo moves quickly, it is likely to win IRS approval in the normal course of things. The financial doldrums of 2008 are a distant memory now and politicians fighting to be the next President are unlikely to make too much of an issue of money kept abroad and in any case, Yahoo is now a relatively minor player.

As Marissa Mayer executes her turnaround strategy for Yahoo while also being in the news as a rare woman CEO balancing the twin roles of mother and corporate professional, Yahoo’s bigger challenges are to do with growing its revenue steams in mobile video advertising and getting more eyeballs to the Yahoo portal with its attempts to transform as an online provider of news, entertainment, technology and sports content.

Investors have already factored in the likelihood of Yahoo facing a tax bill and Yahoo’s focus can be along the lines of growing as a search engine provider — perhaps by aligning with the likes of Apple to dislodge Google as the default search engine on Safari — just as it has dislodged Google from that position in Firefox.