Insiders are worried that the IRS could kill the $67 billion Dell-EMC deal

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Michael Dell

REUTERS/Steve Marcus

Dell Inc. Chairman and founder Michael Dell

Michael Dell wants to buy computer storage maker EMC for $67 billion, the largest tech merger ever. There's just a bit of a problem. He doesn't have $67 billion.

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So he and his dealmakers have come up with a clever way to buy the company using a combination of borrowed cash ($24.05 per share) and something called a "tracking stock" (around $9 per share) that represents and is tied to EMC's 81% controlling interest in VMware.

Dell is hoping the IRS will view the tracking stock for VMware as a tax-free exchange of equities.

And even if it does and the deal is approved as is, Dell is expected to have a whopping $50 billion of debt on its books.

But the IRS might throw a wrench into that, and view that tracking stock as something that is taxable.

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If that happens, the tax bill could make EMC prohibitively expensive for Dell and kill the deal altogether.

Insiders are pretty worried about an unfavorable IRS ruling, reports Re/Code's Arik Hesseldahl, citing people close to the deal. (Hesseldahl goes into detail on the mechanics of the applicable tax code, and why Dell thinks the worst-case scenario won't apply.)

It all adds up to the fact that this huge acquisition is not yet a sure thing. Meanwhile EMC's stock is down about 9% since the deal was announced, and VMware's stock is down about 17%.