With Yahoo Inc.’s plans to spin-out its remaining shares in Alibaba in doubt, the value of its proposed move could be more than halved by taxes. That’s especially worrisome since the value of Alibaba stock has already devalued the investment.

In January, the Internet pioneer announced plans for a tax-free spin-off of its remaining stake in Chinese ecommerce giant Alibaba Group Holding Ltd BABA, +0.53% , after being pressured by activist investor Starboard Value LP. The big problem was that Yahoo US:YHOO did not have the tax-free status approved yet for the spin-out, to be called Aabaco.

The Internal Revenue Service denied Yahoo’s request for a ruling on the tax-free nature of the spin-off, the company disclosed Tuesday, though the agency did not fully rule that Aabaco would be a taxable entity. That leaves the impact unclear for an eventual spin-out, which Yahoo had targeted for the fourth quarter, but it is possible that the company could reconsider the move altogether or move forward in trying to receive approval for the tax-free entity.

Mizuho Securities analyst Neil Doshi tried to get a sense of how bad a tax hit the Yahoo spin-out could experience after the company’s second quarter earnings call. Doshi wrote that Yahoo’s remaining stake in Alibaba was worth about $8.4 billion to the company, or about $9 a share, if taxed at a rate of about 45%. If the spin-out was not taxed, it was worth about $23 billion, or $25 a share, according to Doshi.

Doshi’s report was dated July 22, before the recent sharp decline in Alibaba’s shares, amid a sharp downturn in the Chinese stock market. MarketWatch reported in August that since Yahoo announced the plans for the spin-off in January, the value of its Alibaba stake had declined by about $12 billion, from $39.53 billion on Jan. 27, a decline that could be even more harmful to the eventual return.

Doshi was not immediately available to update his past analysis, but the contrast in valuation is clear: Yahoo’s investment has already declined, and taxes could make the return much smaller still. Investors immediately reacted, sending Yahoo shares down nearly 4% in after-hours trading.

Yahoo said that it learned of the IRS’s decision on Wednesday, Sept. 2, but released the news Tuesday with little of the fanfare of the announcement of its spinoff plans. The company did not issue a press release but instead relied on a filing with the Securities and Exchange Commission to disseminate the news, and did not return a call seeking further comment. Yahoo used a similar approach to the departure of Chief Accounting Officer Aman Kothari, announced in a filing Friday after markets closed.

For all of Yahoo’s touting of how it handled its return to investors of the first portion of its massive Alibaba stake, it’s looking a day late and a dollar short with the second part, and is not being very open about it.

Yahoo shares were down 3.2% in premarket trade Wednesday.