Yahoo is reconsidering its spinoff of some $23 billion worth of shares in Alibaba after the Internal Revenue Service declined to rule on whether the transaction would be tax-free.

According to a regulatory filing, the IRS notified Yahoo last week that it would not grant its request for a ruling on the tax implications of the proposed spinoff of its Alibaba stake into a new company to be named Aabaco. The plan was announced in January.

Yahoo said the IRS had not concluded “the proposed spin-off transaction was taxable and therefore was not ruling adversely on the request” and that its tax counsel still believes the deal “will satisfy all of the requirements for tax-free treatment.”

Nevertheless, Yahoo’s board “will continue to carefully consider the company’s options, including proceeding with the spin-off transaction on the basis of an opinion of counsel,” the company said.

Failing to get the IRS to sign off on a tax-free deal could force Yahoo to choose between incurring a tax in the billions of dollars or scrapping the plan for a spinoff altogether, according to The Wall Street Journal.

“The board of directors at Yahoo is not going to risk incurring billions of dollars in taxes unless it has adequate assurance that the transaction will be tax free,” said Gary Friedman, a tax partner at law firm Debevoise & Plimpton.

CNBC said the difference between no tax on the Alibaba stake and a 40% capital gains tax is more than $9 billion.

Aabaco filed its initial registration statement with the U.S. Securities and Exchange Commission in July and, upon completion of the transaction, Aabaco would own, directly or indirectly, all of Yahoo’s remaining Alibaba shares.

The New York Times said the spinoff was intended to be a reward to Yahoo’s long-suffering shareholders. Yahoo CEO Marissa Mayer has failed to show meaningful growth in the company’s core ad business.

“It’s a big setback for Mayer,” Eric Jackson, founder of the investment fund Ironfire Capital, said of the IRS rebuff. “This was going to be the one feather in her cap, and now it’s seemingly not going to happen.”

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