Close
Close

Some trucking companies not required to file information return for freight hauling

RFP
Tax Hot TopicsTax Hot Topics
In a field attorney advice memorandum (FAA 20151002F) released March 6, the IRS Office of Chief Counsel said motor freight carriers aren’t required to file Forms 1099 for payments made to certain trucking contractors, to the extent the payments were made for freight hauling services.

Under the facts of the FAA, the taxpayer, a motor freight carrier, would contract with independent truck operators to transport retail goods for third parties. The taxpayer would negotiate a fee with a retailer to haul those goods from the retailer’s warehouses to the retailer’s stores. The retailer would load the goods onto the taxpayer’s trailer, and the operator would pick up the trailer and deliver it to the store. The operator would earn a certain percentage of the fee the retailer paid to the taxpayer.

The Office of Chief Counsel advised the IRS exam team that the taxpayer wasn’t obligated to issue Forms 1099 to those independent operators, to the extent that the payments were made for freight hauling services. Under Section 6041(a), any person who makes payments of rent, salaries, wages, premiums, annuities, compensation, or other fixed or determinable gains, profits, and income of $600 or more in a taxable year, in the course of a trade or a business to another person, must generally report that payment to the IRS. Section 6041A includes similar rules for service recipients. In either case, the information is reported by filing Form 1099.

Treas. Reg. Sec. 1.6041-3(c), however, exempts certain payments, including those for freight, from reporting requirements. The IRS had previously issued several private letter rulings (PLRs) interpreting the word “freight” under that regulation, determining that payments for transporting goods, whether incidental or integral to a taxpayer’s business, are excepted from information reporting. The FAA adopted the analysis of the PLRs while acknowledging that PLRs aren’t binding precedent.

In addition, the FAA said there were no cases on point with the facts surrounding the taxpayer that indicated the taxpayer had an information-reporting requirement as a broker under Section 6045. The IRS described the law under Section 6045(a), as well as the regulations that narrow the definition of “broker,” and noted that there were no provisions or examples in the regulations that where a person who acts as a middleman between a service provider and a service recipient is a broker. Accordingly, the Office of Chief Counsel advised the field examiner to not raise Section 6045 reporting as part of the audit of the taxpayer.

Contacts
David Auclair
+1 202 521 1515
david.auclair@us.gt.com

Shamik Trivedi
+1 202 521 1511
shamik.trivedi@us.gt.com

Tax professional standards statement
This document supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the subject of this document, we encourage you to contact us or an independent tax professional to discuss the potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this document may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this document is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.