Yahoo Inc.’s stock bounced sharply in active trade Wednesday, after analysts said the selloff on concerns that the tax-free spinoff of its Alibaba Group Holding stake could be derailed went a little too far.

The stock US:YHOO climbed 3.4% in early trade Wednesday. At 10 a.m. Eastern, volume of 20.2 million shares was already well above the full-day average of about 14.8 million shares, according to FactSet.

As Yahoo explained it: “An IRS representative stated Tuesday that the IRS plans to study its rules for issuing private letter rulings regarding the active trade or business requirement in spin-off transactions and will hold off processing new ruling requests.”

Yahoo’s stock tumbled 7.7% in the final half-hour of Tuesday’s regular trading session, to close at an eight-month low of $40.98.

Analyst Brian Nowak at Morgan Stanley said that while the IRS study could “complicate” the pending spinoff of Alibaba’s stock, he believes the late-Tuesday selloff already almost fully reflects the most bearish outcome, and therefore created a buying opportunity for investors.

Even if Yahoo is no long able to spinoff its Alibaba stake, or Yahoo Japan tax free, and still decides to sell the assets at the full 35% U.S. corporate tax rate, Nowak believed buying at the discounted prices seen late Tuesday of around $41.50 offered 8% upside potential.

Cantor Fitzgerald analyst Youssef Squali reiterated his buy rating, saying at levels seen late Tuesday, the stock offered “compelling” value on discounted-cash-flow and sum-of-the-parts bases. If the spinoff were fully taxed, he believes the fair value for Yahoo’s stock is about $44, which is 7.4% above Tuesday’s closing price of $40.98.

Yahoo owns 383.6 million Alibaba shares BABA, -1.20% , or 15.4% of the Chinese e-commerce giant’s shares outstanding, according to recent regulatory filings.

FactSet

When the company announced its plan to spin off that stake by year-end, to avoid a $16 billion tax liability, the stock ran up as much as 4.9% to an intraday high of $50.32 on Jan. 28, before turning lower. The highest close since then has been $45.78 on April 16.

Yahoo said in an emailed statement: “Yahoo understands that the IRS’s statement is not specific to Yahoo’s planned Q4 2015 spin-off of its remaining stake in Alibaba Group and Yahoo Small Business, reflects no change in applicable law, and does not affect previously filed ruling requests. Yahoo filed its pending ruling request with the IRS in Q1 2015. Yahoo continues to work toward completing the planned spin-off in Q4 2015.”