John Malone's Liberty Media Corp. has received approval from the U.S. Internal Revenue Service for a tax-free split-off of its Liberty Entertainment unit ahead of a merger with DirecTV Group Inc. (DTV.O). Malone is the controlling shareholder of DirecTV, the largest U.S. satellite TV operator, and is seeking approval from shareholders on November 19th to combine it with Liberty Entertainment assets, such as regional sports networks and gaming company FUN Technologies.

Liberty said it received a private letter ruling from the IRS which approves the split-off as a tax-free transaction. No gain or loss would be recognized by Liberty Media on distribution or exchange of the Liberty Entertainment shares. The IRS approval was a key condition for the split-off process. Liberty has been eager to reduce the gap between the value of Liberty Entertainment's assets and its market value. Despite owning more than 54 percent of DirecTV's equity, Liberty has traded at a discount to the satellite company — though that gap has shrunk in the months since it announced its plans to combine.