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.
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