FedEx to pay tax for its Contracts

Internal Revenue Service has asked FedEx to pay $319 million as back taxes since IRS has disagreed on the way the company has saved taxes by using private classified workers for its ground-delivery business.

Memphis based FedEx Corp. has been under scrutiny by the IRS over the issue of contracts with independent drivers for the company's FedEx Ground division. The private contractors are not included in the employees of the company and thus, their taxes are not paid.

In a case filed at Securities and Exchange Commission, IRS said that through an audit in 2002, IRS concludes that those contractors should have been included in the company’s employees.

FedEx’s policy of hiring private drivers who are not eligible to the work benefits of the company and thus, of avoiding taxes has been under an attack for quite some time. FedEx faces numerous lawsuits from unhappy Ground drivers across the country because it classifies its drivers as contractors rather than full employees.

More than 50 lawsuits in 36 states are pending in the Federal courts.

FedEx have shown disappointment regarding this issue, particularly in lieu of the fact that similar case was approved by IRS in 1994.

"The IRS has indicated that it anticipates tax and penalties of $319 million plus interest for 2002," FedEx said. "Similar issues are under audit by the IRS for calendar years 2004 through 2006."

FedEx is not sparing any money for this as the company spokesman Maury Lane said that they will go to the Federal Court and challenge this decision.

"These cases can take up to a decade at times to decide. Right now FedEx is not required to set aside any money for this finding," he said.

The drivers have been bringing the cases to the Federal courts saying that they should also be entitled to all the company’s employee benefits and should be reimbursed for on-the-job expenses and lost wages.

Lynn Rossman Faris, a lead counsel for the drivers in these actions, welcomed the IRS decision to tax the FedEx.

"The drivers have been shouldering FedEx's tax burden for far too long. We hope that the government continues to vigorously pursue justice for the drivers, all American taxpayers and responsible employers," he said.

He also said that IRS action clearly indicates that the contractors should be considered the employees of the company and should be eligible to all the benefits. It has been long enough that the drivers exploited for the huge monetary benefits of the company and they should be given what they are eligible for.

FedEx Ground has been growing steadily since its establishment. It had revenues of $1.7 billion, i.e. almost up by 12% from the last year. In California, FedEx Ground is offering financial incentives to single-route contract drivers to take on multiple routes. But the drivers have been demanding more incentives which are in line with the company’s regular employees.