Internal Revenue Service (IRS) in Payroll Tax Dispute with FedEx

The Internal Revenue Service (IRS) is in a payroll tax dispute with FedEx, and the IRS is proposing to assess tax and penalties against FedEx because it believes that the company has improperly classified its drivers as independent contractors rather than employees. According to FedEx if the IRS prevails the amounts due for 2002 will be in excess of $319 million. FedEx believes, however, it has “strong defenses.”

Payroll tax disputes with the IRS over whether workers are employees or independent contractor are quite common, in part because of the difficulty of determining the proper worker classifications. The IRS employees a 20 factor test in making this determination. This test has is set forth in IRS Rev. Rul. 87-41 . These factors are not weighted equally but must be evaluated in accordance with their significance in each particular case. No one factor is controlling. The 20 factors set forth in the ruling are:

1. Instructions
2. Training
3. Integration
4. Services rendered personally
5. Hiring, supervising and paying assistants
6. Continuing relationship
7. Set hours of work
8. Full time required
9. Doing work on employer’s premises
10. Order or sequence set
11. Oral or written reports
12. Payment by hour, week, month
13. Payment of Business and/or traveling expenses
14. Furnishing of tools and materials
15. Significant Investment
16. Realization of profit or loss
17. Working for more than one firm at a time
18. Making services available to the general public
19. Right to discharge
20. Right to terminate

Brager Tax Law Group, A P.C. has successfully defended many payroll tax audits involving the classification of employees and independent contractors. Please contact Dennis Brager if you would like our help.