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.
Defying the White House, Representatives in the US House voted to prevent about 22 million taxpayers from being hit by the alternative minimum tax (AMT).
What?
Oh yeah, just like with any headline, there’s more.
The idea of AMT relief was originally endorsed by the GOP (such as Senator McCain). The problem with AMT relief? The $61 billion hole in the budget left behind.
To offset the hole, Deomocrats propose to raise revenue in three key areas:
1, The bill would tax the “carried interest” of private equity and hedge fund managers at ordinary income tax rates instead of the 15% capital gains rate;
2, The bill would close a loophole that Democrats say has allowed foreign-owned US firms to avoid taxes on payments to foreign parent companies as a result of tax treaty provisions; and
3, The bill would bar integrated oil companies from claiming a domestic manufacturing tax deduction and would freeze the benefit for smaller oil and gas companies. Integrated oil companies are those involved in the upstream (i.e., exploration and production) and downstream (i.e., refining, marketing, distribution and retailing) segments of the industry. Prior to 2004, oil companies were not entitled to this deduction which was estimated to cost $3.5 billion over 5 years.
House Ways and Means Committee Chair Charles Rangel (D-NY) claims that the offsets are necessary in order to prevent the deficit from getting bigger: “We’ll be able to say we didn’t borrow the money and we didn’t put this burden on our children and grandchildren.”
But the GOP and the White House see it differently, calling the offsets a “permanent tax increase.”
With the offsets in place, the bill likely won’t pass the Senate. If it does, the White House has threatened a veto.
I think we all agree that AMT relief needs to happen in some form - and not as a series of last minute patches. The question is whether there should be an accompanying revenue offset: what do you think?
It cost me nearly $50 to fill my tank this week - $50! And I drive a pretty fuel efficient car. Gas in my home town has hit $4.25/gallon for plain old standard gas. Yuck. Gas prices are just climbing and climbing.
At least there’s a small break: the mileage rate for business miles has finally been upped for tax purposes. The mileage rate will increase by eight cents to 58.5 cents a mile for all business miles driven as of July 1, 2008.
The mileage rate for deductible medical or moving expenses will increase by eight cents to 27 cents a mile.
Sadly, the rate for volunteering at charitable organizations is set by statute and remains at a pathetic 14 cents a mile. Congress, are you reading?
Surprise! Having a “free check” for folks by requiring them to file when they don’t normally have to file isn’t quite as simple as you’d think.
The IRS has announced that more than 25% of eligible seniors have not filed tax returns for 2007. This means that those seniors will not receive a rebate check
So yes, the IRS is going to spend more money sending out another mailing to advise seniors to file. Nice, huh?
Yes, I sound a little bitter. It’s not that I don’t want folks to get their checks. It’s because this economic stimulus package has been a disaster from start to finish - full of mixed messages, IRS mistakes and misinformation from the administration.
And now, we get the price tag. In addition to the $168 billion in “free money” being mailed to taxpayers (which will clearly be made up in later years), the costs of administering the economic stimulus package may reach close to a billion dollars.
IRS initially received $202 million to carry out the economic stimulus legislation - the cost, as mentioned before, of all of the ads in the Super Bowl.
The Social Security Administration received a supplemental of $31 million and Financial Management Service (which manages the Offset Program) received $64 million.
Add that to the reallocation of hundreds of IRS collections staff to answering taxpayer telephone calls - estimated by the IRS to be $565 million in foregone enforcement revenue. These costs are in addition to the significant reduction in IRS’s telephone service, which has been overwhelmed (by a factor of 6) by calls about rebate checks - the costs of the resulting reallocations have not yet been reported.
Add in more “publicity” for the programs as noted above - the initial (non-targeted) mailings cost $42 million. And the costs keeps rising.
I’ll tell you what’s being stimulated - clearly disguised government pork.
The Great Blog Off is winding down here on the east coast! It has been such a blast! I have enjoyed the chance to interact more with my readers and spend the day talking tax.
I have a lot of folks to thank for helping pull this event together. Here are just a few:
- The management team at b5media. Specifically, I want to thank CJ, Jeremy, Shai, Darren and Tris for being so supportive. I tend to have wacky ideas like this - and b5media is definitely one of those environments that encourages this thinking out of the box.
- Rachel, the PR maven, at b5media for helping me get things together.
- Arieanna Schweber, CE at the Entertainment Channel, for really rising to the challenge and chasing this idea. She even created contests for The Great Blog Off over at her channel.
- My fellow CEs who helped me promote the event.
- My twitter friends for helping out with publicity and guest posts.
- Joe Coakley and Mariel Cabral at Accion for getting the infrastructure together for the site and providing me with lots of info about Accion. If you haven’t already trekked over to Accion to make a donation, I’d encourage you to do so. They’ll keep the b5media donation page up for another day or so - after that time, you can always go to the home page.
- Finally, my fabulous group of bloggers… As you may know, I’m the Channel Editor for the Business Channel. The bloggers at my channel are just wonderful, wonderful folks. They work so hard, they care about this company and what happens to each other, and they are so knowledgeable and passionate about their subjects. To do this Blog Off, they volunteered hours and hours (and hours) of their own time. I am so proud of each of them that took the time to participate - even if they could only manage a link to their fellow bloggers. Thanks guys. Muah! You are terrific!
Hey taxgirl,
I love your site and I read it every chance I get. This is not the kind of stuff I would read normally but I like it. Can you name other web sites that you read? I’m not interested in technical stuff.
Taxgirl says:
First of all, thanks so much for reading! I am so glad that you like the site.
Hmm. This is a tough question. I read a lot of great tax blogs. I’m going to list a few of my favorites… I hope that you don’t consider this list all inclusive - Google around and see what you like.
I really enjoy the funny Kay Bell at Don’t Mess With Taxes - though her judgment when it comes to football is seriously impaired (Go Eagles!).
You’ll get straight talk from Robert Flach at the Wandering Tax Pro - which I appreciate.
Joe Kristan at Roth & Company, PC, is witty and knowledgeable - he’s tops on my RSS reader.
Prof James Maule has a great ability on Mauled Again to delve deeply into the meat of tax and still keep it interesting. Follow along for primers on tax law.
Joel Schoenmeyer at Death and Taxes can be pretty specific - but if you’re looking for well written commentary on gift and estates tax, you’ll be glad that you stopped by.
And I know that you said that you didn’t want technical, but I can’t not mention TaxProf Blog. Give it a peek.
I hate doing lists because inevitably, someone gets left out. So if you’re great and I left you off - my apologies!
Check out my sidebar for other great blog links - tax and nontax.
I’d love to hear your favorites, too. Let me know who you read!
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
The Business Channel is supporting Accion International for the Great Blog Off. You can make a donation directly to Accion. Donations are, of course, tax deductible.
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
The Business Channel is supporting Accion International for the Great Blog Off. You can make a donation directly to Accion. Donations are, of course, tax deductible.
Hi Kelly,
Is it true that is you owe back child support then you will not receive the tax stimulus?
Thanks,
Taxgirl says:
More or less.
That’s kind of a loaded question because it depends on a few factors… The IRS can withhold stimulus payments up to the amount owed for federal liabilities or state liabilities when the state participates in the Offset program. Child support is among the liabilities that qualify - but only for documented past due obligations.
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
The Business Channel is supporting Accion International for the Great Blog Off. You can make a donation directly to Accion. Donations are, of course, tax deductible.
I live and bought a car in NJ for $30,000 and paid $2,100 in sales tax. After two years sold the car to a neighbor for $20,000. When he transferred the title he had to pay $1,400 in sales tax. Is this double taxation?
Taxgirl says:
I’m afraid not but it is understandable why you’d think so.
Usually sales that are classified as “resales” are exempt from a second sales tax. An example is that merchandise - let’s use a block of wood as an example - which is purchased specifically to be resold is exempt at the first sale (usually by providing a wholesalers certificate or other proof of resale).
As a rule of thumb, if an item which is sold a “second” time has been modified, it is subject to sales tax. Using the example of the block of wood, if I use the wood to make a table or carve a sculpture, I’ve modified the wood and it becomes subject to sales tax.
In most states (remember that sales tax is state specific), your used car is considered a modified sales item and is subject to sales tax. If you were a Ford dealer, the result would not be the same - Ford would not pay sales tax on a car that it purchases and subsequently sells to the consumer, though sales tax would be imposed on the final sale. Ford does this by providing the manufacturer with proof of exemption. Individuals not engaged in retail as a business are not generally entitled to the same.
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
The Business Channel is supporting Accion International for the Great Blog Off. You can make a donation directly to Accion. Donations are, of course, tax deductible.
Who is behind Accion? You can find out more from watching this video:
As mentioned in the video, the driving force behind Accion is microfinance. To learn more about microfinance, you can read this article in the Economist, Poor people, rich returns or the Forbes commentary piece, Microfinance at the Crossroads.
The Business Channel is supporting Accion International for the Great Blog Off. You can make a donation directly to Accion. Donations are, of course, tax deductible.
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