Hmm… What’s that they say about keeping your enemies close?
It turns out that state and federal officials might have been some help with the investigation that triggered tax liabilities and class action suits against FedEx. And that help may wear brown, deliver packages and look cute in shorts…
It turns out that Kenneth Kies, a tax lawyer (of course) and lobbyist whose firm has been paid more than a half million dollars by UPS over the past five years, may have tipped off officials in Ohio that FedEx was misclassifying some of its drivers and independent contractors. And by “tipped off”, I mean, sent officials a 562-page report, which he asked to be kept “confidential” – a similar letter was delivered to Washington state.
Ohio officials have since acknowledged that it was “very” unusual to get such detailed allegations. Nonetheless, Ohio moved forward with their investigation into FedEx’s classification of its Ground delivery drivers and slapped FedEx with a $654,000 tax bill.
Why would UPS care about what really boils down to a few hundred thousand dollars in an industry that makes billions? It’s not about the taxes. It’s about classification.
You see, so long as FedEx classifies its drivers as independent contractors, they may not unionize. UPS, however, treats their drivers as employee; those employees are part of the powerful Teamsters Union. This means increased costs – as much as 30% – to UPS.
It also means additional headaches for FedEx. They are being investigated beyond Ohio – and class action suits have been followed in nearly half of the US states. Additionally, federal tax officials have notified FedEx of a potential $319 million tax bills for classification issues in 2002. An investigation into FedEx by the IRS is continuing – analysts have suggested that the total liability could hit the $2.5 billion mark.
For its part, FedEx claims that it will “vigorously defend” its position. FedEx management continues to maintain that FedEx Ground owner-operators are independent contractors. Their position stems from a 1995 agreement between Roadway Package System (RPS) and the IRS, which reads in part:
The Service agrees that it will not reclassify the RPS owner-operators as employees, except upon a determination after audit, that RPS has exercised control over the RPS Owner-Operators in a manner that conflicts with the 1994 Operating Agreement, Letter of Assurance and Exhibits.
Later, RPS became FedEx Ground. FedEx believes that the Agreement continued and therefore absolves them of liability for classifying those FedEx Ground drivers as independent contractors. The facts, however, may tell a different story. Reports are that FedEx exercised considerable control over its drivers… Control, you may remember, is a key factor in the determination of independent contractor status.
Remeber that Tax protesters in the United States make a number of statutory arguments that the assessment of the federal income tax in the United States violates the statutes enacted by the United States Congress and signed into law by the President. Such arguments generally claim that the statutes fail to create a duty to pay taxes, that such statutes do not impose the income tax on wages or other types of income claimed by the tax protesters, or that provisions within the statutes exempt the tax protesters from a duty to pay. Other arguments contend that the Internal Revenue Service is not authorized by statute to assess income taxes, to seize assets to satisfy tax claims, or to penalize persons who fail to file a return or pay the tax assessed.
These kinds of arguments are distinguished from related constitutional arguments and general conspiracy arguments. Statutory arguments presuppose that Congress has the constitutional power to assess a tax on incomes, but that the Congress has simply failed to impose the tax by statute. Supporters of such arguments may or may not be inclined to contend that constitutional and conspiracy arguments apply as well.
The courts that have been presented with such arguments have ruled them to be spurious, unpersuasive, frivolous, or all three.
Wow, this is terrible. The IRS can go back (retroactivlly) and looks into this further….unfortunatelly for them