Shares in Yahoo Inc (YHOO.O) fell 7.6 percent on Tuesday, as the stock sold off dramatically in the last 20 minutes of the trading day on worries that a potential change in U.S. tax regulations would affect Yahoo's expected spinoff of its stake in Alibaba Group Holding Ltd (BABA.N).

The potential change, which Bloomberg reported that an Internal Revenue Service official discussed at an event of the D.C. Bar Association on Tuesday, could complicate Yahoo's plan announced in January to spin off its shares in Alibaba tax free.

Yahoo did not respond to immediate request for comment.

The IRS said it was considering changing its rules regarding spinoffs and would suspend requests starting on Tuesday, Isaac Zimbalist, senior technician reviewer at the IRS's Office of Associate Chief Counsel, said at the D.C. Bar Association event, according to Bloomberg.

The IRS did not respond immediately to a request for comment.

"The concern is there may be road blocks to this event," said Colin Gillis, BGC Partners analyst, referring to Yahoo's spinoff of the Alibaba stake. Shareholders may also worry about the prospects for a potential spinoff of the company's Japan business, Gillis said.

Almost 30 million shares in Yahoo changed hands between 3:40 p.m. EDT (1940 GMT) and the 4 p.m. market close, out of the 41.9 million shares traded in the full session. The trading volume was almost three times Yahoo's 10-day average.

Shares in Alibaba closed up 1.3 percent at $88.21. Shares in Yahoo fell $3.38 to $40.98.

"People are interpreting (the IRS change) as negative for Yahoo right off the bat," Victor Anthony, analyst at Axiom Capital.