FedEx says IRS drops tax assessment, $319 mln fine

Package delivery company FedEx Corp said in a regulatory filing on Wednesday that the U.S. Internal Revenue Service has dropped a tax assessment against it for 2002, plus $319 million in penalties.

The Memphis-based company said in a filing with the U.S. Securities and Exchange Commission that the IRS had withdrawn the tentative assessment related to the classification of independent contracts at FedEx unit FedEx Ground.

The company said the IRS is continuing an employment tax audit of FedEx Ground for the 2002 calendar year.

"We are engaged in discussions with the IRS audit team regarding this matter," the company said in the filing. "We continue to believe that FedEx Ground's owner-operators are independent contractors and that no loss is probable in this matter."

FedEx said in a filing last December that the federal tax authority had "tentatively concluded" that the 15,000 independent contractors FedEx Ground uses as drivers should be reclassified as employees.

FedEx said at that point that it aimed to "vigorously defend" its position.
The use of independent contractors at FedEx Ground allows FedEx to save money and compete with its main rival, Atlanta-based United Parcel Service Inc, whose drivers are unionized and represented by the Teamsters.

But that cost-saving model has come under attack from a number of different directions, including attempts by the Teamsters union to organize FedEx Ground workers and lawsuits in more than 30 U.S. states brought by some current and former FedEx Ground drivers.

Opponents of the FedEx Ground contractor model allege the level of control the company exercises over their work should qualify them as employees and entitle them the benefits that go with that status.

FedEx has always denied such claims, saying that its contractors are independent entrepreneurs and not employees.