FedEx said it is preparing to meet with an audit team from the Internal Revenue Service to discuss the IRS's tentative conclusion that FedEx should reclassify its delivery drivers as employees rather than independent contractors.

FedEx expects the meeting to take place this spring. The IRS told FedEx last month that it anticipated assessing tax and penalties of $319 million plus interest for misclassifying FedEx Ground delivery drivers, whom the company calls "pickup-and-delivery owner-operators," in 2002 (see FedEx Employees Misclassified, Says IRS).

FedEx said if the 2002 employment and withholding taxes need to be paid, they would be fully deductible, but FedEx anticipates it can persuade the IRS to accept its classification of the drivers. "We believe that we have strong defenses to the IRS's tentative assessment and will vigorously defend our position, as we continue to believe that FedEx Ground's owner-operators are independent contractors and that no loss is probable," said the company in a statement.

The IRS is also conducting audits of FedEx for 2004 through 2006. According to the International Brotherhood of Teamsters, the potential losses to FedEx could reach over $1 billion.

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