Alaska Employment Law

Annual tax bill could be over $300 million 

We recently reported on the FedEx Ground litigation in Anchorage federal court.  There, the driver of an “independent contractor” for FEG claimed that he had a “joint employent” relationship with FEG.   Judge Burgess denied FEG’s summary judgment motion on the classification issue.

Saturday’s Wall Street Journal (12/22/07, A-4) now reports that the IRS recently “tentatively concluded” that certain FEG “independent contractors” were, in fact, employees for tax purposes, and that FedEx owed the government hundreds of millions of dollars. 

A review of FedEx’s Dec. 21st 10-Q confirms this.  The quarterly report (pp. 18-19, n.9)  states:

On December 20, 2007, the Internal Revenue Service (“IRS”) informed us that its audit team had concluded an audit for the 2002 calendar year regarding the classification of owner-operators at FedEx Ground. The IRS has tentatively concluded, subject to further discussion with us, that FedEx Ground’s pick-up-and-delivery owner-operators should be reclassified as employees for federal employment tax purposes. The IRS has indicated that it anticipates assessing tax and penalties of $319 million plus interest for 2002. Similar issues are under audit by the IRS for calendar years 2004 through 2006. We believe that we have strong defenses to the IRS’s tentative assessment and will vigorously defend our position, as we continue to believe that FedEx Ground’s owner-operators are independent contractors. Given the preliminary status of this matter, we cannot yet determine the amount or a reasonable range of potential loss. However, we do not believe that any loss is probable.