U S West Media Group said the $2.3-billion deal to sell its domestic mobile-phone business to AirTouch Communications Inc. has collapsed because Congress denied its request for a special tax exemption. However, the Denver-based firm plans eventually to sell the holdings anyway through an agreement with AirTouch that doesn't rely on tax-free status, said Steve Lang, a spokesman for U S West. U S West will continue to operate the business under a joint venture with Walnut Creek, Calif.-based AirTouch. Until April, federal law would have allowed the two firms to complete the sale without paying federal taxes. But lawmakers decided the provision was a loophole and closed it. U S West executives asked for an exemption as part of the federal budget bill, but Congress approved the budget without taking action. U S West Media shares rose 6 cents to close at $22.13 on the New York Stock Exchange; AirTouch fell 50 cents to $32.44, also on the NYSE.