Yahoo Inc shares rose on Tuesday after the company said it would go ahead with the planned spinoff of its stake in Alibaba Group Holding Ltd despite the risk that the deal might not be tax free.

Shares of Yahoo, which said this month that the U.S. Internal Revenue Service (IRS) had denied its request for a private letter ruling on a possible tax-free deal, rose 3.6 percent to $28.60 in light premarket trading.

"We believe the likelihood of a positive tax outcome for the company could be more likely now," Mizuho Securities analysts wrote in a note. "In our opinion, the IRS is maintaining the status quo on this issue, and with no changes to guidance on this matter, we believe that Yahoo should be able to complete this transaction in a tax-free manner."

Mizuho cut its price target on Yahoo's stock to $40 from $43, based on Alibaba's lower valuation, joining several other brokerages in doing so.

Yahoo Chief Executive Marissa Mayer has been under intense pressure from shareholders to spin off its stake in the Chinese e-commerce giant.

The 15 percent stake is worth nearly $23 billion, as much as Yahoo's market value, having halved this year as Alibaba's stock has slumped 45 percent. Yahoo's shares are also down 45 percent.

At a 40 percent rate, tax on the spinoff would be around $9 billion.

"The decision could potentially put shareholders on the hook for any tax liability should the IRS challenge (Yahoo's) interpretation of tax treatment in the future. We expect this would trigger a legal battle," MKM Partners analyst Rob Sanderson wrote in a note.

"We think this would present an overhang until clarity arrives," he said, but added that the uncertainty was fully priced in.