The move comes amid uncertainty over whether the spinoff of its 384 million-share stake would be taxed, and would reduce the risk of a significant tax payment for a transaction meant to create value. The IRS told Yahoo earlier this year that it would not rule on whether the company could avoid a tax hit when putting its stake in a separate entity, which it planned to name Aabaco.
An announcement from the company could come as soon as Wednesday.
Activist investor Starboard Value had called for Yahoo to abandon its Alibaba spinoff and seek a sale of its core business. Rumors surrounded Yahoo as its board weighed options for the business in meetings last week.
Yahoo's assessment of its core business, as well as its Yahoo Japan stake, could take a year or more, sources said.
"You want to separate out these assets as quickly as possible," Colin Gillis, senior tech analyst at BGC Financial, told CNBC's "Closing Bell" on Tuesday. "The [spinoff] that was going to happen in January was going to happen in a timely manner."
Yahoo currently has a market capitalization of more than $30 billion. However, some company observers have placed the value of its core business at less than nothing, discounting its Alibaba stake and other equity interests.
Shares of Yahoo were up more than 2 percent in extended trading Tuesday.
Yahoo declined to comment.
— CNBC's David Faber contributed reporting.