The IRS is auditing similar issues for 2004 through 2006, the package delivery company said in the filing with the U.S. Securities and Exchange Commission.

"Given the preliminary status of this matter, we cannot yet determine the amount or a reasonable range of potential loss. However, we do not believe that any loss is probable," Fedex said in the filing.

The International Brotherhood of Teamsters, which has asserted FedEx Ground workers are in fact employees and which is campaigning to unionize FedEx Ground drivers, welcomed the IRS decision.

"It's game over for FedEx's independent contractor scam," union President Jim Hoffa said in a statement.

The union said penalties against FedEx could eventually top $1 billion, since the current penalty only covers the year 2002.

FedEx said that it has "strong defenses to the IRS's tentative assessment and will vigorously defend" its position that FedEx Ground's owner-operators are independent contractors.

The filing came a day after Memphis, Tenn.-based FedEx warned that it faces "increase regulatory and legal uncertainty" over the independent contractor model it uses at FedEx Ground, which could result in higher costs..

FedEx Ground uses 15,000 drivers who are paid as independent contractors. Under this system, FedEx Ground drivers can own multiple routes, employing other drivers to deliver packages. Investors like the model because it helps FedEx save money and compete against main rival United Parcel Service Inc and its unionized work force.

The Internal Revenue Service has settled a claim against the founders of Houston's Kid-Care for about $1,000 — a tiny fraction of the hundreds of thousands that Texas Attorney General Greg Abbott claimed the couple had stolen from the charity.

The agreement, dated Nov. 7, says Carol Porter owes $938.93 in unpaid taxes from 2001 and 2002, while her husband, Hurt Porter, owes $37 from 2002. The document stipulates that the Porters have not acknowledged any improper expenditures.

In a lawsuit filed in April 2003, Abbott said the Porters had used some of the charity's funds for personal expenses such as airline trips and lavish meals.

Abbott settled the case with the Porters' insurance company for $495,000 in August 2004.

Abbott's investigation identified almost $500,000 in questionable expenses the Porters billed to Kid-Care's credit cards from 1999 through 2002. The IRS case involves the Porters' tax returns from 2001, 2002 and 2003.

"The expenses laid out by the attorney general seemed to be the same expenses that the IRS was questioning," said Juan Vasquez, a tax attorney who represented the Porters.

Pitt sued the federal government on behalf of its former employees in 2004, arguing early retirement payments between 1996 and 2001 were not taxable wages because faculty members surrendered tenure as a condition of receiving the money.

A federal district court judge agreed, in part. But the 3rd U.S. Circuit Court of Appeals overruled that decision.

The 2-1 court majority says the faculty received the money for past service - making it wages. Pitt says it's not clear whether it will appeal.

The Internal Revenue Service intends to improve international tax administration in an effort to reduce the tax gap.

As part of that effort, the IRS said it would increase its outreach to international taxpayers, as well as taxpayers in U.S. territories such as Guam, Puerto Rico and the U.S. Virgin Islands, while it beefs up enforcement. "We are challenged by a lack of information reporting on many cross-border transactions," said the IRS in a page recently posted on its Web site.

The IRS intends to strengthen its information reporting and withholding systems, enhance its access to international data, and "ensure adherence to professional standards by tax professionals."

The IRS also wants to improve its cooperation with treaty partners to identify inappropriate tax arbitrage and abusive schemes, and provide greater transparency on cross-border transactions. One goal is to detect financial criminal activity involving offshore entities.

Modernization of technology, staff and business processes will play a role in the effort. The IRS hopes to improve its systems for capturing and using information reported by treaty partners to improve U.S. taxpayer compliance.

The agency intends to identify the workforce skills it needs to address emerging international issues and develop training for its employees so they can get these skills. The IRS will also improve its forms and processing systems, and assess its referral systems and resources to make sure that high-risk issues are dealt with in a timely way.

Beginning in 2006, certain corporations that had assets greater than $50 million were required to file their basic tax forms electronically. Approximately 15,500 of them filed their returns electronically last year. Starting in 2007, certain businesses with assets of more than $10 million had to file electronically.

"Corporations of all sizes are seeing the long range advantages of integrating their tax filing in an electronic environment along with their tax and financial accounting," said IRS Treaty Administration Director Elvin Hedgpeth. "While large and mid-size corporations are required to e-file, many small corporations are seeing the advantages of e-filing voluntarily."

Tournament sponsors who comply with the reporting requirement don't need to withhold taxes on the winnings. If the sponsor does not report the winnings, though, the IRS will enforce the reporting requirement and require the sponsor to pay any tax that should have been withheld from the winner. The withholding amount is normally 25 percent.

Tournament winners must provide their taxpayer identification number or Social Security number to the tournament sponsor. If they don't, the sponsor must withhold 28 percent of the winnings. Taxpayers must also report their winnings on their own to the IRS, as they have been required to do in prior years.