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Investors were jubilant last week as Yahoo CEO Marissa Mayer announced the company is moving forward with a plan to unload its $40 billion stake in Chinese company Alibaba without paying the $16 billion it would otherwise owe in federal and state corporate taxes.

While such a transfer would normally trigger corporate income liability, Yahoo is exploiting Section 355 of the tax code (which includes the cash-rich split-off loophole) to avoid paying this tax.

Congress originally created Section 355 to allow companies to spin off part of their business into a separate company still owned by its current shareholders. For example, the drug company Merck used to own the online pharmacy Medco. Merck spun off  Medco to its shareholders in a tax-free transaction. This was okay, because Medco was an active business.

But in Yahoo’s case, the new company, SpinCo, is not actively engaging in business, rather it is a phantom company that is simply made up of Alibaba-owned stock with a tiny active business attached. Unfortunately, Section 355 lacks a provision requiring that active business activities constitute a significant portion of the spinoff company, meaning that Yahoo and other companies can create a spinoff company that is made up almost entirely of stocks or other investments.

To be sure, SpinCo would be liable for the tax on the Alibaba stock if it distributed it to its shareholders. But apparently, the plan is for SpinCo to be taken over by Alibaba, in exchange for giving Spinco’s shareholders Alibaba stock that they would own directly. Such a transaction would apparently also be tax-free at both the corporate and shareholder levels. In contrast, when Yahoo sold $10 billion of its Alibaba stock last year, it paid a $3 billion in taxes, a tax bill that activist stockholders are pushing the company to avoid this time around.

It’s hard to imagine that Congress intended Section 355 to exempt Yahoo from paying tax on the huge gain in its Alibaba stock. Yet savvy tax lawyers have crafted a way for Yahoo to get away with this tax dodge.

A straightforward way for Congress to close this loophole would be to require that at least 90 percent of the spinoff company’s assets be used in an active business. Such a reform would stop companies from making a mockery of the corporate capital gains.

While Yahoo’s plan is unique in terms of the sheer scale of its tax avoidance, it is certainly not the first time a large multinational corporation has used variations on the cash-rich split-off loophole. Last year, Berkshire Hathaway, the investment company owned by Warren Buffet, announced a deal that would allow it to avoid $400 million that it would have otherwise owed while essentially selling its $1.1 billion in Washington Post stock to Graham Holdings.

Congress should not allow Yahoo to dodge as much as $16 billion in taxes, enough money to pay for one year of universal pre-k across the country. Congress should amend the law and stop future corporations from following Yahoo’s lead.