FedEx might Owe the I.R.S. $1 BILLION

The FedEx Corporation said it was facing taxes and penalties of more than $319 million for 2002 related to an Internal Revenue Service ruling regarding the classification of independent contractors at its FedEx Ground unit.

The ruling, disclosed by FedEx on Friday in a filing with the Securities and Exchange Commission, determined that workers at FedEx Ground should be reclassified as employees instead of as independent contractors.

The I.R.S. is auditing similar issues for 2004 through 2006, the filing said.

“Given the preliminary status of this matter, we cannot yet determine the amount or a reasonable range of potential loss,” FedEx said in the filing. “However, we do not believe that any loss is probable.”

The International Brotherhood of Teamsters, which has asserted FedEx Ground workers are employees and is campaigning to unionize drivers at FedEx Ground, welcomed the decision.

“It’s game over for FedEx’s independent contractor scam,” the union’s president, Jim Hoffa, said in a statement.

The union said penalties against FedEx could eventually top $1 billion, since the current penalty only covers the year 2002.

FedEx said that it has “strong defenses to the I.R.S.’s tentative assessment and will vigorously defend” its position that FedEx Ground’s owner-operators are independent contractors.

FedEx Ground uses 15,000 drivers who are paid as independent contractors. Under the system, FedEx Ground drivers can own multiple routes and employ other drivers to deliver packages.

Source [NYTimes]