IRS Says FedEx Misclassified Workers

December 24, 2007 ( - FedEx Corp. reported last week that the Internal Revenue Service thinks some 13,000 owner-operators at the package delivery firm have been misclassified as independent contractors.

According to a filing with the Securities and Exchange Commission (SEC), FedEx said the IRS has tentatively concluded, subject to further discussion with the firm, that FedEx Ground’s pick-up-and-delivery owner-operators should be reclassified as employees for federal employment tax purposes.

Moreover, FedEx said the IRS has indicated that it anticipates assessing tax and penalties of $319 million plus interest for 2002. It also said “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,” FedEx said in the filing. “Given the preliminary status of this matter, we cannot yet determine the amount or a reasonable range of potential loss,” the company noted.