Yahoo's shares rose 4 percent to $28.71 in extended U.S. trading.
The Web-search company said earlier this month the IRS had denied its request for a private letter ruling on whether the spin-off 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 U.S. federal tax laws, Yahoo said in a regulatory filing.
Based on Alibaba's Monday close of $59.24, Yahoo's 384 million shares of Alibaba are worth $22.75 billion.
The value of the stake is slightly less than Yahoo's market capitalization of about $25.98 billion 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.
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Investors have closely followed plans for the spin-off, seeing it as a way to unlock value from the company.
Yahoo paid $1 billion in 2005 for a 40 percent stake in Alibaba, in a deal credited to the U.S. company's co-founder Jerry Yang.
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 spin-off is not subject to tax incurred from selling the shares.