The Internal Revenue Service generally will treat any gain
on such a transaction as U.S. taxable income (or, in technical terms, «effectively connected income») irrespective of the transaction's connection to a U.S. trade or business, Smitha says.
Sheppard Mullin advises some of the most forward thinking and innovative global clients in connection with the antitrust and competition issues that may have an
impact on such transactions.
It is also an important structural protection in the Commercial Mortgage Backed Securities (CMBS) market — without it, some firms may decline to rate or cap their
ratings on such transactions, causing CMBS borrowers to face the threat of default or bond downgrades.
In a letter sent to Yahoo on Thursday, the investment firm Starboard Value argued that the reason for spinning off the Alibaba stake — avoiding taxes while raising money for shareholders — appeared to have evaporated after questions arose over whether the Internal Revenue Service would crack down
on such transactions.
A spinoff of Alibaba shares into a separate entity would have helped mitigate the capital gains tax bill, but the move became less appealing after the I.R.S. said it might crack down
on such transactions.