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As usual, Matt Levine is excellent at explaining these sorts of things:

http://www.bloombergview.com/articles/2015-12-02/yahoo-is-lo...

Isn't that what they're trying to do? Spin off all of Yahoo's current business into a new company, leaving current Yahoo with just the shares of Alibaba.

I don't get it. Why shouldn't Yahoo pay the taxes? They invested in Alibaba, and have made HUGE gains, and if they want to realize those gains, they need to pay the taxes.

The shareholders of YHOO will pay taxes regardless. If YHOO wants to spend the money from Alibaba, it will (and has already done so) pay taxes. The question is whether YHOO should pay taxes before returning the gains to the shareholders, who will then pay taxes.