FedEx says IRS drops Ground contractors from 2002 tax audit

SEATTLE (Reuters) - FedEx Corp said in a regulatory filing on Friday that the U.S. Internal Revenue Service had revised a employment tax audit notice against it for 2002 to drop assessment tied to FedEx Ground independent contractors, including those providing home delivery service.

In an e-mailed statement, a spokesman for the Memphis-based FedEx said the package delivery company was "pleased" with the outcome.

While similar issues remain under audit for calendar years 2004 through 2008, FedEx believes the same conclusion would be reached for those years too, the company said.

A year ago, FedEx said the IRS is continuing an employment tax audit of FedEx Ground for the 2002 calendar year, after the IRS withdrew a tentative assessment tied to the classification of independent contracts.

FedEx had said before that the federal tax authority "tentatively concluded" that the 15,000 independent contractors FedEx Ground uses as drivers should be reclassified as employees.

The use of independent contractors at FedEx Ground lets FedEx save money and compete with rival United Parcel Service Inc, whose drivers are unionized and represented by the Teamsters.

But that cost-saving model has come under fire, including attempts by the Teamsters union to organize FedEx Ground workers, and opponents of the model alleging that the level of control FedEx exercises over the contractors' work should qualify them as employees and entitle them to the respective benefits.

But FedEx has always denied such claims, saying that its contractors are independent entrepreneurs and not employees.

(Reporting by Aarthi Sivaraman)