The two companies have been in talks for a month, the person said, but cautioned that there is no guarantee a deal will be reached.

Numerous discussions have been held in recent years about a deal for Alibaba to reclaim some or all of the 40 percent stake in the company that Yahoo acquired in 2005.

A $17 billion tax-free asset swap between the two companies fell apart in February.

The latest deal would not be tax-free and would be much more straightforward, the person told Reuters on Friday.

"The overall complexity of this deal is much simpler. There's no IRS risk, there's no complications with regards to the identification of assets," the person said. In a best case scenario, a deal could be weeks away, the person said.

The situation may have become more complicated following Thursday's revelation that Yahoo Chief Executive Scott Thompson's resume falsely stated that he had earned a computer science degree in college.

Yahoo, which initially called it an "inadvertent error," has since said its board is reviewing the matter. Activist investor Third Point, which is leading a proxy fight against Yahoo's board of director and which discovered the error in Thompson's resume, has demanded that Yahoo fire Thompson by Monday.

Yahoo and Alibaba declined to comment.

Yahoo acknowledged that it was in talks with Alibaba, during its first-quarter earnings conference call with analysts last month. During the call, Thompson said the two companies were working on a "simplified" transaction to "monetize" a portion of Yahoo's stake in Alibaba.

To fund the deal, Alibaba would raise capital. The valuation that Alibaba receives in the fund-raising will determine how much Yahoo earns in the transaction, the source said.

In September, Alibaba was valued at $32 billion when Silver Lake and other firms invested in the company, according to media reports at the time. At that valuation, Yahoo could make $4.8 billion to $8 billion by selling 15 to 25 percent of Alibaba.

"Of all the previous ones we've worked on, this one feels like it might actually have a chance of getting done. Or at least it did until a day and a half ago," the person said, referring to the controversy around Thompson's resume.

Details of the talks were first reported by the Wall Street Journal on Friday.

(Reporting by Alexei Oreskovic; Editing by Richard Chang)

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