Yahoo's shares rose 4 percent to $28.71 (roughly Rs. 1,900) in extended trading.
The Web search company said earlier this month the IRS had denied its request for a private letter ruling on whether the spinoff of its stake in the Chinese e-commerce giant would be considered tax free.
The spin-off will remain subject to certain other conditions including the receipt of a legal opinion on the tax-free treatment of the deal under US federal tax laws, Yahoo said in a regulatory filing.
Based on Alibaba's Monday close of $59.24 (roughly Rs. 4,000), Yahoo's 384 million shares of Alibaba are worth $22.75 billion (roughly Rs. 1,51,074 crores).
The value of the stake is slightly less than Yahoo's market capitalisation of about $25.98 billion (roughly Rs. 1,72,540 crores) based on 941 million shares outstanding on July 31 and Monday's close.
Many analysts say Yahoo's core business is worth close to nothing without its Asian assets.
As of Monday's close, Yahoo's shares have declined a little more than 45 percent this year. Alibaba's shares have fallen nearly 45 percent over the same period.
Investors have closely followed plans for the spinoff, seeing it as a way to unlock value from the company.
Yahoo, which expects to complete the deal in the forth quarter ending December 31, has been trying to revive its core online advertising business by spending more to get users on its websites.
Analysts and shareholders believe the company and its stake in Alibaba would be worth more separately, as long as the spinoff is not subject to tax incurred from selling the shares.
© Thomson Reuters 2015