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Trucking Industry Overview - Complete Version

Affected IRM: X.XX.X

"This document is not an official pronouncement of the law or the position of the Service and cannot be used, or cited, or relied upon as such."

Table of Contents


A. Purpose of Industry Overview
B. Use of the Intranet and Internet
C. General History of Industry Specialization Program (ISP)
D. History of Ground Transportation ISP
E. Industry Specialist Staffing (Technical Advisors in LB&I)
F. LB&I Industry Staffing
G. Description of the Trucking Industry

History of Trucking Industry


Industry Terms

A.   Abbreviations

Accounting Principles

Information Systems

Industry Operating Procedures

Government Regulatory Requirements

A.   Federal Requirements
B.   State Requirements
C.   Local Requirements

Significant Law and Important Issues

A. Coordinated Issues
B. Emerging or Other Significant Issues
C. Recent or Pending Legislation
D. Specific Industry Related Tax Law
E.  Important Revenue Rulings or RevenueProcedures
F.  Important Court Cases
G. Technical Advice Memorandums – Field Service Advices

Alternative Issue Resolution Considerations

Industry Resources

A.  WEB Sites
B.  Trade Associations
C.  Other IRS Training Courses/Videotapes
D.  Trade Magazines and Newsletters
E.   Industry Books
F.   Internal Revenue Manual Citations
G.  AICPA Auditing Standards and Publications
H.  Market Segment Specialization Program (MSSP)


A.   Complete Listing of Industry Overviews Available

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A. Purpose of Industry Overview

This overview is designed to provide industry-related information to all Large Business & International (LB&I) Division. This is the first step in the effort of LB&I to develop a greater level of expertise in the industry or industries to which you will be assigned. This overview is one of a series of industry specific overviews. See the Appendix for a complete listing of available overviews.

B. Use of the Intranet and Internet

A web page for each industry has been established on the LB&I Intranet site that contains detailed information involving each industry. The topics included in this overview will be expanded upon and others will be included. For example, an up-to-date economic analysis of the industry, current and future trends, and links to many other industry related web sites that can assist you in gaining the needed level of understanding of your industry will be included.

C. General History of Industry Specialization Program (ISP)






The Service was restructured in 1952 into a highly decentralized organization consisting of seven regions and 58 districts. This reorganization was implemented in part to achieve greater sensitivity and responsiveness to pubic needs. District Directors were given wide latitude and authority in administering the Service's policies, procedures and programs. While decentralization of the Service proved to be a progressive action, communication between the regions and districts was made more difficult because of their quasi autonomy. Positions taken by the Service on industry issues could differ significantly from one region to another on the same issues.


The Service implemented the Industry Wide Examination Program to concurrently examine the major taxpayers in a given industry, coordinate selected issues common to that industry and to resolve those issues uniformly and consistently among all the industry taxpayers. Under the direction of project coordinators (usually large case branch chiefs), the industry wide examinations were largely successful in achieving uniform and consistent treatment of issues. Industry wide examinations were conducted in several industries between 1971 and 1979 and the ability to communicate freely across district and regional lines proved to be invaluable to the success of these examinations.


The Industry Wide Examination Program had one major drawback. Since they existed for only two or three tax years and were then terminated, the program failed to provide continuity. To correct this situation, a major study group was created in 1977 to review the Service's Coordinated Examination Program. The study recommended that permanent positions be established for several Industry Specialists and a National Industry Coordinator. In addition, the study group identified basic industries to which it recommended specialists be assigned. The duties and responsibilities of the Specialists and the Coordinator were to be much broader than the former Project Coordinators whom they replaced.


The recommendations of the study group were implemented greatly expanding the scope and depth of the Industry wide Examination Program. The term, Industry Specialization Program, eventually evolved as a name that could encompass the varied concepts of Industry Specialists, National Industry Coordinator, Coordinated Issues, and the many refinements suggested by the study group.

D. History of Ground Transportation ISP






Railroad Industry Specialization Program began with first ISP, John Koetting a Case Manger in St. Louis selected for the position. John continued to manage two railroad cases during his tenure, which lasted through 1986.


Upon John's retirement, the manager of PSP in St. Louis, Gary Kuper, was selected as ISP. Shortly thereafter, the National ISP program initiated an expansion to assign a designated district counsel and appeals ISP coordinator for each program. Bob Fowler of Kansas City District Counsel, and Jay Wyatt of St. Louis Appeals were assigned to the railroad program.


National Office authorized the Railroad ISP to conduct a study of the trucking industry to determine whether an ISP program for that industry was warranted.


Upon completion of the study, approximately 30 potential issues had been identified and an Assistant ISP position was created within the Railroad program. The program was renamed as the Ground Transportation Industry, and Larry Akins, a revenue agent in St. Louis was selected as Assistant ISP.


ISP Gary Kuper retired, Larry Akins was appointed Acting ISP.


B. Wayne Van Dyck, of Roanoke Virginia, former Sr. Team Coordinator with ten years experience in the railroad industry, was selected as the ISP. The Assistant ISP position was left vacant until 2000.


Debbie Carney, an Appeals Officer in St. Louis, was selected as the new Appeals Coordinator.


Robert Everitt, a revenue agent from Eau Claire, Wisconsin, with extensive experience in trucking examinations, was selected as the Associate ISP. At the same time Robin Herrell replace Bob Fowler as Ground Transportation Counsel.


Jean S. Yang replaced Debbie Carney as Appeals Coordinator.


Gary Shuler replaced Robin Harrell as Ground Transportation Counsel

12-31-2010 Dennis Scobie retires and Dan Longhi acts as technical advisor (TA) pending the hiring of a new TA

E. Industry Specialist Staffing (Technical Advisors in LB&I)



Name of Specialist


Dan Longhi, Acting Trucking Industry TA Jacksonville FL

F.  LB&I Industry Staffing

The Industry Specialist is assigned to the Pre-Filing and Technical Guidance Division that is a part of LB&I Headquarters.  Each industry is assigned to one of the five Industry Functional Divisions.  Industry Specialists will be known as technical advisors in LB&I and will be supervised by a Manager, Technical Advisors.  Information relative to the management in the Industry Division that this industry is assigned (Heavy Manufacturing and Transportation, HMT) as well as the Manager: of the Technical Advisor(s) of this industry is as follows:




Laura M. Prendergast Industry Director HMT


Iselin, NJ

Rosemary E. Daley Field Operations Director


Downers Grove, IL

Catherine L. Jones Field Operations Director


Iselin, NJ

Dorothy Livaudais Manager, Technical Advisors


Paterson, NJ



G. Description of the Trucking Industry

Includes all taxpayers engaged in the business of providing transportation of freight by truck.

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History of Trucking Industry





Late 1800’s

The Federal Government began regulating transportation companies to prevent railroads from charging unfair freight rates. Regulation also helped to protect transportation companies from unfair competition.


Congress passed the Motor Carrier Act.  This gave the Interstate Commerce Commission (ICC) authority to regulate the motor carriers and drivers involved in interstate commerce by granting operating permits, approving trucking routes, and setting tariff rates. 

The ICC set uniform tariff rates for hauling freight.    Since the rates were uniform for all trucking companies, there was little or no competition due to pricing.

Mid 1900’s

Containerization became a popular method of transporting freight, to reduce shipping costs, reduce handling of the freight, and cut losses due to damage or theft.

Containerization consists of packing freight into big metal boxes called containers.  The containers can then be transferred between container ships, truck trailers, and railroad flatcars.

Trucking is often used in combination with the railroad in a method called "piggybacking."  This occurs when the trailer chassis (with the loaded, sealed container attached) is separated from the tractor and loaded directly onto a railroad flatcar.

When the trailer arrives at its destination by railroad, the container is reconnected to another tractor for transport to its final destination.


Department of Transportation (DOT) is created. 

Through the Office of Motor Carriers and the National Highway Traffic Safety Administration, DOT oversees a wide range of requirements such as braking standards, driver licensing standards and their maximum work hours, and the overall safety fitness of interstate carriers.


The Motor Carrier Act of 1980 partly deregulated the trucking industry.

In the decade after deregulation, the competition in trucking was fierce.  There were not only hundreds of new companies, but also the formerly gentlemanly manner in which the big players dealt with each other became a battle to the death.  Ten years after trucking was deregulated, one third of the 100 largest trucking companies were out of business, casualties of the fierce competition.

It became increasingly difficult for the trucking companies to operate with union drivers.  Their compensation is usually 35 percent more than non‑union drivers.

To reduce operating costs, new corporations were formed to operate with non‑union drivers or independent contractors. 


The Surface Transportation Act of 1982 set uniform size and weights limits for the trucking industry nationwide.  Under this law, trucks that use interstate highways may not weigh in excess of 80,000 lbs.


Carrier Reform Act

Reduced the time for customers to file an OVERCHARGE CLAIM from 3 years to 2 years effective 12-3-93 to 8-26-94.  Reduced to 6 months after 8-26-94.


North American Free Trade Agreement (NAFTA) passed and resulted in explosive trade with Mexico.

Since 1994, Mexico’s northern states have created 2,554 manufacturing plants that provide U.S. companies with assembly goods. 

Most of the production is done for just-in-time deliveries, so trucks are constantly crossing the border to either deliver parts or pick up finished merchandise.  But as of 2004 Mexican trucks are still not allowed to travel freely throughout the entire U.S.

1994 & 1995

Deregulation essentially was completed with the enactment of additional legislation.

Because of these Federal changes which pre-empted the states from regulating the intrastate activities of interstate carriers, many states have either deregulated or significantly eased the economic controls placed over the truckers operating solely within their borders.


Interstate Commerce Commission (ICC) is abolished.

In sun setting the ICC, Congress further eased economic controls. 

The Surface Transportation Board is the Federal entity now administering the remaining regulatory functions. The STB is an independent unit within the Department of Transportation.


National average diesel fuel price per gallon in 1998 was $1.0440.


Motor Carrier Safety Improvement Act of 1999 outlawed the practice of Mexican trucking companies leasing their vehicles and drivers to carriers in the U.S.

The Mexican companies leased their vehicles to U.S. companies so they could operate legally throughout the U.S.

The act also established the Federal Motor Carrier Safety Administration, whose stated purpose is to reduce the number and severity of large-truck involved crashes through more commercial motor vehicle (CMV) and driver inspections and carrier compliance reviews, stronger enforcement, expedited completion of rules, sound research, and effective commercial driver’s license (CDL) testing, record keeping, and sanctions.

National average diesel fuel price per gallon in 1999 was $1.1210.


  Used Truck Price Crisis

From the fall of 1999 thru the spring of 2000 the entire trucking industry faced a “virtual crisis” of falling used truck prices that threatened to undermine the economic viability of the nation’s fleets, truck manufacturers and truck finance companies.  After several years of strong new-truck sales, capped by the record-breaking pace of the past two years, a wave of good, low-mileage tractors flooded the market and depressed prices to the lowest level seen in years.  The falling value of their huge investments in equipment left about two-thirds of the trucking companies in North America practically bankrupt under accounting rules.  Bankruptcy filings were rampant.  This issue was even more important than skyrocketing fuel prices and the ongoing driver shortage.


April, 2000 the Internet-telecom-IPO bubble burst.  The high-tech implosion sent Wall Street into a bear market and the economy flirting with recession.


The year of 2000 was at times tumultuous for the trucking industry. Sky-rocketing fuel prices, protests and blockades by independent operators, battles over US taxes, plummeting new truck sales, and questions over the direction of the Canadian economy all played a role in casting uncertainty over the market.   Even thru all of these problems the market managed to continue to produce more freight and more activity for truckers.

By the summer of 2000 companies began to worry about replacing their aging fleet of vehicles.  But the midrange engines, mandated to be sold by October 2002, were for the most part untested.  The industry did not trust them, they were expected to cost more initially and miles per gallon was expected to suffer.  Companies went on a binge, buying up low mileage used trucks and tractors in an attempt to avoid buying new trucks with the 2002 engines.   Companies lengthen their equipment trade cycles to avoid the 2002 engines until they are proven.  Used truck prices began to climb out of the cellar.

National average cost per gallon of diesel fuel in 2000 is $1.3191


The U.S. economy entered a recession in March 2001, after an unprecedented 10 years of growth.

Following the devastating September 11th terrorist attacks on America, the Dow is sharply lower, the economy is sinking fast, layoffs are surging, and defense spending is up.

Demand for heavy trucks softened.  This combined with rising trucking company bankruptcies again glutted the market with used trucks.   There are usually 30,000 used, class 8 trucks on the market.   In November to December 2001 there are reported to be as many as 100,000.   An over-abundance of used trucks, together with a softening of the economy and rising diesel fuel prices choked off demand for new trucks. These factors, in turn, created falling profit margins.

Toward the end of 2001, the trucking business is showing signs of better health after a painful two-year slump that put hundreds of thousands of drivers out of work.  But it is consolidation, not a surge in demand that is behind the rebound.  Analysts and executives are hesitant to draw overly optimistic conclusions about a broader economic recovery.  Still, carriers that survived are hauling more freight, getting better rates and reporting higher profits.

National average cost per gallon of diesel fuel in 2001is $1.42.


The collapse of the largest carrier ever to declare bankruptcy was announced on Labor Day. It cost the Teamsters more than 15,000 jobs.  It will take several years to sell off the companies’ terminals and vehicles.

There are 330,000, or 13 percent, fewer trucks today than there were two years ago.  Large companies have been able to gain market share and even raise rates despite sluggish growth. Truckers that rely more on the retail sector have fared better than those dependent on the manufacturing sector.

Companies have been able to squeeze profits out of less revenue by using better technology to keep costs down.  Better logistics software has enabled companies to more efficiently coordinate the movement of trucks around the country.

National average diesel fuel price per gallon in 2002 is $1.32.


Early in 2003, the U.S. economy was still stagnating after a “false alarm” recovery that proved to be an illusion.  The war in Iraq and continued worries about corporate scandals and accounting, are keeping the economy in a funk.

Fuel prices were beginning to rise in early spring, even as insurance costs were escalating, taking another chunk out of trucking’s bottom line.

The trucking industry paid an estimated $465 million more for its motor fuel than in the corresponding week of 2002.  According to the Department of Energy, the average price of a gallon of diesel in the nation rose to a new record of $1.51, while the gasoline average high was $1.55, but below the record of $1.713 set in May of 2001.

Of the 11,500 carriers who went out of business between 2001 and 2003, 5,000 trucking firms went out of business in 2003 alone.  As the difficult economic times pushed a number of fleets out of business, trucking capacity declined. Then, as the economy began to stir, fleets were able to raise rates as shippers scrambled to find carriers to move their goods. 

Mergers and acquisitions were the primary moving force behind changes in the trucking industry during 2003.   Analysts predict more mergers ahead, especially among small- and medium-size fleets as they strive to compete with the ever-larger big fleets.  Growing demand from shippers for a wide array of related transportation services is also likely to fuel mergers and acquisitions in coming years.

The new top 100 rankings showed more positive financial results during 2003, as the national economic recovery was beginning.  Overall, revenue for the top 100 carriers rose 7% during 2003, compared with 2002.   While 2003 was a better year for most carriers, two sectors lagged well behind the overall industry: tank-truck carriers and vehicle haulers. 

Many fleets sliced their operating ratios during the year.  Operating ratios (OR), which show a company’s expenses as a percentage of its revenue, are a prime indicator of profitability, with an OR of 100 representing a break-even operation.  An OR of 85 was the best in the industry.

Final engine Pre-Buy surge!  Mercedes didn’t have to comply with EPA engine requirements until Jan.1. 2004.  Therefore, truck buyers late in 2003 bought up every available production slot of the Mercedes-Benz 4000 heavy-duty diesel engine, in what amounted to a “pre-buy” of the last major Class 8 engine that did not have to comply with the Oct. 1, 2002, tougher federal emissions rules. From what had been a little-used engine in the North American market before the 2002 rules kicked in, sales of the MBE 4000 soared to 18,000 units during 2003 up from 1,644 in 2002.

By the last quarter of 2003, the economy was unmistakably on a drive, as jobless rates finally began to fall and manufacturing and retailing reported notable gains.


New driver hours of service rules, which took effect January 4, 2004, effectively reduce on-duty time for drivers and increase the time a driver must take off between shifts, causing a drop in productivity for some truck drivers.

Resurgent U.S. and global economies, favorable depreciation rules and a need to replace aging equipment are driving a boom in trailer sales

Trucking companies are convinced that the post-October 2002 diesel engines have been reasonably durable.  Companies return to their traditional 3 to 4 year trade cycles for rolling stock.  Companies begin to worry over the next round of EPA mandated engines for the years 2007 & 2010.  Executives from four of the largest U.S. heavy-duty trucking fleets urged the federal government to provide financial incentives to help offset anticipated higher purchase and maintenance costs for the next generation of lower-emissions diesel engines

In April 2004 the price of crude oil in New York rose as fighting in Iraq continued.  Crude oil prices are up 22% from a year earlier.

June 2004:  At midyear, a tentative business recovery that gathered steam in 2003, now appears to be pushing the limits of freight-hauling capacity   and has boosted revenue and profits for most, but not all, of the carriers.

In August 2004, truckload firms for months have been overbooked by 10% to 15% on any given day.   But now that the freight industry has moved into its heaviest period — of mid-August to mid-November as it stocks up for Christmas and end-of-year sales, demand could outstrip available truckload capacity by as much as 25%.  Diesel fuel declined 0.2 cent per gallon to $1.869.  The average gasoline price reached a record $2.064 on May 24 and is up 37.2 cents so far this year.

Many carriers were forced to increase driver pay during 2004, in order to recruit and retain as many drivers as possible.  The demand for drivers is very high, while the supply is limited.  Related to the driver shortage is driver turnover.  American Trucking Assn reported that in the third quarter of 2004, large Truck Load (TL) linehaul driver turnover hit a new all-time high of 121 annualized percent.

Sales of heavy-duty trucks/tractors surged 59.8% in August 2004 to their highest level in more than four years, driven largely by replacement orders from fleets that held onto aging trucks during the 2001 recession and after.  Truck manufacturers are operating at capacity.

The Government's role in the transportation industry consists primarily of (1) providing funding for certain transportation facilities and (2) regulating certain aspects of transportation, such as safety. 

On September 20th, diesel price rises to $1.912, an all time high.

On September 28th, the national average diesel price rose to $2.012 per gallon, setting a record high.

On October 13, 2004, the national average retail price for diesel fuel rose 3.9 cents per gallon to $2.092, the fourth straight weekly record, according to the Department of Energy.

Diesel fuel national average price is $1.81 per gallon for the year 2004.


Diesel fuel national average price is $2.402 per gallon for the year 2005.

Government regulations and security concerns are making the industry less attractive for drivers, especially for those required to carry HazMat endorsements to their Commercial Driver’s License (CDL).  Heightened security concerns following 9/11 prompted the U.S. DOT to institute 49 CFR Part 172 regarding these upgraded requirements for CDLs.  Fingerprinting of HazMat-endorsed drivers was implemented in the U.S. in 2005, and is expected to deter drivers from renewing their certification.

Turnover among drivers remains very high.  Less-than-truckload (LTL) driver turnover is roughly 40 percent, while turnover in long haul package truckload is running over 100 percent.  Bulk liquid driver turnover is over 60 percent.

The shortage of drivers across the U.S. trucking industry will be just over 100,000 in second quarter 2005.

The Internal Revenue Service on April 4, 2005, published guidance excluding four truck body types from federal excise tax. Revenue Procedure 2005-19 states that the 12% excise tax on new vehicles does not apply to platform bodies 21 feet or less in length, dry freight and refrigerated truck van bodies 24 feet or less in length, dump truck bodies with load capacities of eight cubic yards or less, or refuse packer truck bodies with load capacities of 20 cubic yards or less.


Diesel fuel national average price is $2.745 per gallon through September 2006.

The Transportation Security Administration issued a Notice of Proposed Rulemaking (NPRM) spelling out its plan to require all commercial truck drivers delivering or retrieving goods at ports to have special ID cards. The NPRM appeared in the Federal Register on May 22, 2006.  The Transportation Worker identification Card (TWIC) would incorporate biometric data, criminal background checks, and threat assessment procedures.  Fees for the cards will range from $117 - $149, with lower fees set for drivers with hazmat endorsements or Free and Secure Trade (FAST) cards.

Truck/tractor sales:  There has been heavy “pre-buying” of trucks & tractors in anticipation of the new 2007 engine and fuel standards.  The 2007 truck/tractors are expected to cost more and get less miles per gallon.  Through most of 2006 the industry worried that heavy-truck sales would drive right off a cliff at the beginning of 2007. The thought was that anyone who wants a new truck in the next two years will have ordered it in time to take delivery by December 31, 2006.   That way, they don't have to endure the higher cost of buying, maintaining, and fueling a 2007 model with its new engine, after-treatment, and need for untested ultra-low-sulfur diesel (ULSD) fuel.  But  truck orders are holding up well.  Most manufacturers appear to have sold out their '06 production capacity by July 2006, yet they're still booking orders for trucks that won't be built until well into '07.  The credit goes to a very strong economy.


National average diesel fuel price in the U.S. on 10-1-2007 is $3.048 per gallon.

Beginning in January 2007, the trucking industry will be required to submit electronic cargo manifests to Customs and Border Protection for trucks entering the United States through all ports of entry in the states of Washington and Arizona, and select ports in North Dakota.  The information will be submitted through the automated commercial environment, or ACE, which CBP touts as its next-generation technology to track and process truck cargo.

ACE currently is deployed to 49 ports and ultimately will be at all 99 land-border ports.  CBP intends to make it mandatory for the trucking industry to use ACE starting in 2007.  The system will be expanded in coming years to process air, rail and sea cargo.

ACE is scheduled to be fully deployed by 2011.


National average diesel fuel price in the U.S. on 12-4-2008 is $2.515. 2008 average prices peaked at over $4.70 in July.

Soaring diesel fuel prices amid a continued weakness in freight volume made 2008 one of the worst years ever for the U.S. trucking industry, with little relief seen in 2009.

Railroad carload volumes were at record levels in 2006, near record in 2007, declined 16% 2008, and declined 20% in the first 6 months of 2009
Over 3,000 trucking companies, mainly small companies and owner-operators, went out of business

Problems in financial markets impact borrowings for new equipments and infrastructure improvements

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A. Role of Information Technology

The technology and information revolution has greatly improved the accuracy of shipping data and the speed with which this information can be shared. These innovations, in turn, are allowing information to reduce the amount of on-hand inventory needed for operations.

Like railroads, motor carriers are using technology to transmit timely reliable information to assure the prompt movement of their goods. Just in-time service cannot occur unless the pertinent shipping information is just ahead of the load.

Unlike railroads, motor carriers are exploring a wider variety of technologies. Several factors influence this trend.

First, there are far more motor carriers than railroads. As of August 2002, 585,677 interstate motor carriers are registered with the USDOT's Office of Motor Carriers.

Second, motor carriers do not operate over a fixed route system. Customer demand requires trucks to travel to a diverse array of sites. As a result, this industry's technology choices have tended to link commercial vehicles with their corporate and customer structures through satellite and cellular communications.

As early as 1998, trucking companies contracted with communication companies to install GPS tracking units on their tractors. Each tractor had a radio frequency identification (RFID) tag, a computer with a keyboard in the cab, and a satellite antenna with a GPS on the back of the cab. The GPS tracking units not only track the location of equipment (customer orders), but also are used to communicate with drivers to give directions, instant messaging, send paperwork, and guide them around roadwork or areas of trouble. GPS tracking units also aid in placing the closest truck to the next nearest customer which reduced response time and hence increased customer and driver satisfaction.

In 2000 the U.S. government removed Selective Availability (SA) from the Global Positioning System (GPS). Since SA removal increases GPS receiver accuracy to within 20 meters, it allowed new GPS applications to emerge.

During the year 2000, the largest trucking companies embarked on an information technology binge to reduce their operating costs which were increasing, but the main reason for this change was to gain a competitive edge.

Strategic information systems were the focus of the largest trucking companies.
In 2001, trucking companies embarked on a mission to increase their web site orders.
Logistics companies were spun off to build customer friendly web sites that would enable customer transactions to be completely paperless. Ultimately the new web site would enable customers to enter their order, check the what, when, where of that order, as well as schedule and proof of delivery. Companies with these web sites gained a major advantage over their competitors. The effect of these customer web sites was two fold. The price of doing business was reduced and the simplicity, convenience and satisfaction for the customer were improved immensely through information technology.

The simplicity factor of information technology had additional effects. Fewer personnel were needed to complete the order process as a whole, because the web site answered customer questions, while management could now concentrate on streamlining other aspects of the organization. Drivers were less likely to get lost or put on non-billable miles (loss of drivers' income). Since the drivers' telecommunications system was on-board, stopping in route to call the office for information was almost eliminated.

One problem of driver retention in the industry as a whole was addressed by providing e-mail through satellite communications, so the driver could stay in touch with his or her family while on the road. Technology addressed this one quality of life issue for the drivers and their families which of course positively affected the driver retention problem.
With thousands of drivers, any company with this technology gained a competitive hiring advantage.

Other problems such as load scheduling were solved by IT. With thousands of load assignments per day, along with all the possible combinations of drivers and loads it was an immense human task to assign the loads to the right truck/tractor. New IT Load Scheduling Systems were created to access thousands of loads per second and to assign the loads to trucks that are at different locations each day.

In 2001 through US Dot's Intelligent Transportation System and other initiatives, tag and reader technologies have been developed and deployed. By 2005, deployments are expected to cover the Nation.

One of the new technologies is the "Prepass" Electronic Preclearance System.

The Department of Transportation (DOT) in many states uses PrePass, on the interstate highway network. The PrePass system allows motor carriers with good safety records, the opportunity to comply electronically with state size, weight and safety requirements, while bypassing the weigh station at highway speed. Electronic Preclearance provides several advantages including improved highway safety, reduced emissions, less fuel consumption, and happier drivers. Motor carrier participation in PrePass is voluntary and only those with proven safety records can participate. As of March 2001, nearly 20% of all trucks that passed Illinois interstate weigh scales possessed PrePass transponders. Of these vehicles, almost 66% were given a green light to bypass.

The PrePass system works as follows:

  1. As a truck approaches a DOT weigh station, an in-cab transponder identifies the vehicle to a computer in the weigh station.
  2. A PrePass computer located in the weigh station verifies truck credentials. Within seconds the truck is automatically weighed and credentialed at highway speeds.
  3. A green light on the drivers' dash and audible signal give the go-ahead to bypass the weigh station. If weight or credentials can not be verified, a red light and audible signal instruct the driver to pull into the weigh station for verification.
  4. A compliance antenna on the highway provides validation of PrePass equipped trucks.

In December 2002, U.S. and Canadian Customs began the Free and Safe Trade (FAST) program which promises to revolutionize the processing of transborder trade. In September 2003, U.S and Mexican Customs began FAST initiative.

  • The Fast initiative seeks to expedite the clearance of transborder shipments of compliant partners by reducing Customs information requirements, dedicating lanes at major crossings to FAST participants, using common technology, and physically examining cargo transported by these low-risk clients with minimal frequency.
  • The program is a catalyst for both Customs administrations to participate in the enhanced technologies by using transponders, which would make it easier to clear low risk shipments, and would mitigate the cost of program participation for FAST partners.

FAST Cargo Release Methods
The two present cargo release methods for FAST shipments are the National Customs Automated Prototype (NCAP) and the Pre-Arrival Processing System (PAPS).

  • FAST is the first completely paperless cargo release mechanism put into place for Customs and Border Protection. This paperless processing is achieved through electronic data transmissions and transponder technology. FAST is highly automated and allows for the expedited release of highly compliant cargo from major importers, reducing congestion at our borders.
  • The Pre-Arrival Processing System (PAPS) is a Customs Automated Commercial System (ACS) border cargo release mechanism that utilizes barcode technology to expedite the release of commercial shipments while processing each shipment through Border Cargo Selectivity (BCS) and the Automated Targeting System. (ATS).

Effective January 5, 2004 the Department of Homeland Security requires that the Customs & Border Patrol (CBP) must receive, by way of a CBP-approved electronic data interchange system, information pertaining to cargo, before it is either brought into or sent from the United States by any mode of commercial transportation. The electronic manifest must be received at least 30 minutes before a truck attempts to enter the United States. The information will be compared with law enforcement and commercial databases to target potentially dangerous shipments that need to be inspected. Mislabeled cargo or a shipper's record of past violations might cause cargo to be labeled high risk.

The next step in Information Technology is expected to turn the entire day to day operations of trucking into a "no touch" process from beginning to end. This step will take companies closer to being defined as a "digital firm".

Intermodal is not a mode of transportation. It is a process or a way of offering freight services by two or more modes, e.g. ship to railroad, railroad to truck and etc., so that the efficiencies of each participating carrier are maximized. As a result, customers receive more efficient service. Carriers profit from business opportunities, which would not exist under their more traditional service structures.

Although the first commercial application of rail/truck intermodal service occurred in the 1950s, the service did not become a dynamic industry until the 1980s. Three events are key to this evolution.

  1. In 1980, railroads and motor carriers were partially deregulated from Federal economic controls.

    For the first time, trucking companies were given the right to enter into microwave technologies rather than the railroads' single microwave tag and reader system.

    This diversity of technologies also is a function of the higher competitive pressures motor carriers face. In today's environment, carriers are competing vigorously on the levels of service they provide including the ability to trace shipment location and pickup/delivery times. However, tag and reader technology is being explored for industry use for non-commercial purposes.
    In addition to needing to talk to its customers and suppliers, truckers need to talk to their regulators - the state entities, who require operating permits, assess tolls, impose taxes, and enforce safety requirements such as shipment weights.
  2. In the early 1980s, the Interstate Commerce Commission, now the Surface Transportation Board, issued a series of decisions exempting rail/truck intermodal service from all Federal economic controls. These decisions did not affect how modes offered their own services.

    DOT's administrative safety controls over intermodal service remained in place. Carriers were freer to experiment with intermodal services. Therefore, rail and truck freight carriers used the intermodal industry to create the innovative performance standards and service options that would later help transform their own modes.
  3. In the mid 1980s, the railroads created double stack train service. Instead of moving a single container or trailer per rail car, two containers were placed on a car, one on top the other. This innovation allowed the railroads to transport twice the freight with modest increases in motive power and minimal increases in operating expense.

    While a truck container or trailer on a railroad car is the oldest and most popular image of this industry, it really is just one segment.
    Air/truck service, whether for small package express or full size cargo, truck/water, rail/water, and pipeline/truck combinations deliver intermodal freight transport services as well.


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Industry Terms


Industry Term

Definition of Term


Converse of line-haul; movement of freight from point of destination to point of origination. Part of the overall movement of door to door service.

Bill of Lading

Shipping documents which transfers title to the goods.


A two axle truck with the van permanently attached to the chassis.

Bingo Stamps

Trip permits issued by the Public Utility Commission (PUC) for each intrastate freight move.

Break bulk Agent

Breaks down a container into its various shipments; deconsolidator.

Cargo Handler

Person that loads freight onto dock and into trailers; also known as swampers, lumpers, stevedores, longshoremen.


An ocean vessel, airfreight, or common carrier in the business of transporting goods or persons.


To transport goods between the freight terminal and cargo carrier.


Uncollectible account receivables that reduce the cash received from factored invoices.


Basically long, thin, steel frame on wheels, which attaches to truck tractors to haul containers.

Co loader

A freight forwarder that consolidates shipments with another freight forwarder.

Common Carrier

A for hire carrier who holds itself out to the public to engage in the transportation of freight at published rates between a group of points which they are authorized to serve.


The company or individual that receives the shipment of freight.


Purchases container space at a volume price for resale to freight forwarders. Practice of taking several small separate shipments of freight and organizing them into one container.


A large metal box used to store freight on ocean vessels and rail cars. Once the vessel arrives in port, the container can be loaded onto either a truck chassis or a railroad car. They usually come in 20 or 40-foot lengths.

Container Freight Station (CFS)

Customs bonded warehouse.

Contract Carrier

Firms whose transportation service is limited to individual contracts, which are tailored to the specific needs of a shipper or a group of shippers.

Custom Delivery Order

Delivery order prepared by a customs house broker.

Customs House Broker

A licensed agent authorized to pay customs duties and take possession of goods coming through Customs. No one may act as a Customs House Broker without a Customs House License.

Because customs duties may range up to 20 percent plus on some products, the consignees, for cash flow purposes, may elect not to clear customs at point of entry, but instead, through the services of a Customs House broker, wait until the goods are shipped inland before clearing customs and paying the duties.

Custom House brokers have to post a $500,000 bond, to insure that if the goods are damaged or stolen during transportation, the duties on the goods will still be paid to Customs.


Driving the tractor without a container.

Delivery Order

A copy of the invoice containing the shipper, consignee, destination, description of goods, and weight.


A fee charged by the shipping companies if the container is not returned timely.


A fee charged by the railroad if the trailer is not returned timely.


The person who arranges the pickups and deliveries of freight and prepares the drivers' manifests


Areas used to load and unload freight from one trailer to another. This is the structure that a trailer backs up to. (Terminal).

Door to Door

Pickup at the shipper's dock (door) and delivery to the consignee's dock (door) that is handled by the same company.

Door to Ramp

Pickup at the shipper's dock (door) and delivery to the ramp of the railroad, ocean ship or airline carrier.


Pulling a trailer or container (cartage), the charges for transfer and cartage between stations, or to and from vessels on carts or trucks.

Exempt Carriers

For hire carriers who engage in moving specialized commodities that are exempt from government regulation. Most notable of these exempt categories are unmanufactured agricultural commodities.


Oversees operations on the dock.

Free Time

Amount of time (days) the container can be used without any charges. Varies with the type of container and mileage distances.

Free Zone

The area within a certain radius of the port of entry or harbor where a for hire carrier is not required to be licensed by the ICC to transport freight between states.

Freight Broker

An agent for the independent contractor that arranges jobs for independent contractors.

Freight Forwarder

An agent who makes the arrangements for the transportation of freight from the shipper to consignee. The freight forwarder issues a through bill of lading from the origin to the destination, and takes full responsibility of the freight while it is in transit.

Glider Kit 

This is a kit to construct a tractor. It does not contain an engine or a transmission. It may be subject to Excise Tax.

Haul away

Trailer used to move cars and trucks

House Airway Bill 

Air freight bill of lading for a single shipment of freight.

Interline (line haul)

Agreement between shipper and transportation company that specifies the modes of transportation and identifies the specific carriers to be used.


The transfer of equipment from one carrier to another.


Term used in describing transportation of freight combining the use of railroads and trucks, usually for long distances. Competitors to intermodal transportation providers are the long haul trucking firms.

Labor Leasing

The practice of leasing employees (both drivers and office staff) instead of hiring them. The labor leasing company is responsible for paying employment taxes and filing the tax returns.

Less Than Truck Load

A shipment of loose freight, as opposed to a full sealed container.


Porthaulers who transport freight from the harbor to the railroad.


Movement of freight from the point of origination to point of destination


Ocean carrier cargo handler that loads and unloads freight at the harbor.


Cargo handler of fruit, vegetables, dry goods and agricultural products that is usually paid by cash.


Schedule of freight pickups and deliveries.

Master Airway Bill

Summary of the house airway bills for a single container

National Motor Freight Traffic Assoc. Inc.

An organization that compiles and sets tariffs for various states, including California. A yearly fee is paid to use their classifications and tariffs. A similar organization is the Western Motor Tariff Bureau.

Non Vessel Operating Carrier (NVOCC)

A consolidator of freight for an ocean carrier that is regulated by the Federal Maritime Commission.


Loading freight at the shipping end, point of origination.


Unloading freight at the receiving end, final destination.

Over The Road

Transportation by tractor and trailer from one metropolitan area to another metropolitan area.

Owner Operator 

A truck driver who owns and operates his or her own vehicle.


Where the trailer is loaded onto a rail car.

Piggyback Agent

Shipper's agent that books and schedules freight on railroad.


A subhauler that picks up freight at the harbor and hauls it to the operations terminal or to the consignee.

Pre Note

Preliminary freight invoice used to schedule freight moves and prepare the final freight bill.

Prime Carrier

A general common carrier with operating authority with either the PUC, ICC, or both depending on the type of hauling, intrastate or interstate.

A Prime carrier must post a $15,000 subhauler (surety) bond with PUC/ICC.

Designation as a prime carrier allows the company to solicit
business directly from a shipper. If the company does not have the prime carrier designation, it can only work for another prime carrier as a subhauler.

Private Carrier

Business that is registered with the PUC to transport and deliver their own goods. Most of their operations are moves of less than 100 miles. This industry segment's average length of haul is 51 miles.

Ramp to Door

Pick up at the railroad and delivery to the consignee's door.


Refrigerated trailer.

Radio Frequency Identification (RFID)

Used to locate a product or asset in transit anywhere on the globe. RFID tags can be as small as a grain of rice.


The individual or company sending the freight to the consignee.

Shipper's Agent

A transportation broker that arranges movement of freight.


Hauling empty trailers back to the rail yard or container company.


Cargo handler that loads and unloads freight from vessels at the harbor (longshoreman).


An owner operator that hauls freight for a prime carrier.


A truck driver's assistant that loads and unloads freight during the delivery of goods (lumper).


The rate that the carrier charges for the hauling of freight.

These rates must be filed with either the PUC or the ICC depending on which agency is controlling.


Dock where freight is loaded or unloaded


This is the power unit that pulls the trailer.


The vehicle that is pulled by a tractor in hauling freight- container.

Trailer Interchange Agreement

Agreement between the carrier and container companies that spells out the amount of free time allowed, and the demurrage or detention fees to be charged for delays.


The process of moving freight from ocean containers to domestic containers and vice versa.


The act of unloading freight from a container trailer and loading it into a trailer bound for the consignee.

Truck Load (TL)

A sealed trailer or container.


Where goods are stored prior to delivery or distribution.


Tractor with a short turning radius that is used to pull trailers or containers within the freight yard and not intended for highway use.




Automated Broker Interface


American Truckers Association


Container Freight Station


Customs House License


Cost, insurance, freight


Cost, not freight


Container on flat car


Collect on delivery


Container Yard


Department of Transportation


Freight All Kinds


Free on Board


Federal Maritime Commission


HAWB House Airway Bill


International Air Shipper's Association


International Air Transport Association


Interstate Commerce Commission


Lift on/lift off


Less than Truck Load


Master Airway Bill


Motor Transportation Broker


Minimum Weight


North American Free Trade Agreement


Non vessel operating common carrier


Overland common point (revenue class)




Over the Road


Proof of delivery


Point of entry


Personal Liability/Property Damage


Public Utilities Commission


Roll on/roll off


Radio Frequency Identification


Surface Transportation Board


Truck Load


Trailer on flat car (that is, piggyback)


Vessel operating common carrier (such as, ocean carrier)

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Accounting Principles

The link between financial accounting and tax accounting is the Schedule M-1 of the Corporate Income Tax Return, Form 1120. Examples of M-1 adjustments that should be reviewed due to differences between financial and tax accounting include:

  • Abandonments
  • Accrued Rent paid to greater than 50 percent stockholder
  • Accrued Wages, Bonus and Vacation Pay of greater than 50 percent stockholder
  • Depreciation variances
  • Indirect and Direct Costs Capitalized (IRC Section 263A)
  • Insurance,
    1. Officers Life Insurance-Increase in Cash Surrender Value
    2. Self Insurance Reserve
  • Interest Expense Capitalized, (IRC Section 263A)
  • Inventory and Parts Writedowns
  • Lease of Equipment (Lease vs Depreciation)
  • Lobbying (Dues to organizations that lobby)
  • Meals expense 50 percent reduction
  • Penalties and Traffic Citations
  • Prepaid/accelerated expenses
  • Tires on new tractors and trailers (deducted for tax, capitalized for book)
  • Writedowns of Asset Values


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Information Systems

Freight logistics is an increasingly important tool in maintaining the Nation's ability to effectively compete in the global marketplace. Logistics is premised, among other things, on ever more reliable transportation systems as well as greater use of information technology.

Logistics seeks to eliminate unnecessary inventory from the manufacturing/production process by putting supplies and finished goods in the distribution pipeline for the minimum amount of time possible. As a result, transportation carriers are being asked to perform with precessions never before required. Information technology has taken on increasing importance in managing freight flows.

As the National Commission on Intermodal Transportation reported, "The weakest links in the current transportation system are the points of transfer between the modes." The commission recommended that Federal policies "foster the development of the private sector freight intermodal system and reduce barriers to the free flow of freight, particularly at international ports and border crossings."

To expedite the filing of the Customs Form 7501 and payment of the customs duties, the customhouse broker has the option of using the following information systems: 



Automated Commercial System.
Replaces Form 7501, writing a manual check and delivery of the check and Form 7501.


Automated Broker Interface.
Allows the filings to take place electronically and for the broker to pay duties by check or by electronic transfer.


Automated Manifest System.
Serves as a merchandise inventory and electronic cargo release system through the electronic exchange of information between U.S. Customs and the importing carriers.

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Industry Operating Procedures

Trucking is pervasive. It serves as the carrier of choice for most small businesses, especially the very small firms, who rely on package express carriers to meet their transportation and logistics needs.

By revenue, food and food products, lumber or wood products, as well as petroleum or coal account for 34.8 percent of truck traffic. By volume, clay, glass, concrete and stone, farm products, as well as petroleum and coal account for 35.6 percent of truck traffic. Trucking's customer focus has played a key role in helping to create the logistics revolution of the past decade.

Although the popular image of the industry is the tractor-semi-trailer hauling goods long distances over the Interstate highways, this image is not reality for two reasons. First, truck equipment is diverse, dominated by smaller vehicles and a wide variety of equipment types. Second, the bulk of trucking operations is local. About 66 percent of truck tonnage moves distances of 100 miles or less. Local and regional hauls account for almost half of all truck revenues and are the dominant arrangement for private carriers.

Contract Carriers enter into a bilateral agreement with the shipper or consignee for transportation services. The contract defines the services to be provided, the commodities transported, the projected tonnage and the rates charged. Contracts are to contain a specific termination date, not exceeding one year. The contract can be renewed by amendment. The contract carrier can offer freight rates that are lower than a common carrier's published tariff since the rate will be based on the projected tonnage of freight for the year.

Private carriers are corporations who run their own truck fleets to better coordinate their manufacturing processes or better serve their customers and distributors. These firms have decided that it is better to provide their own services rather than use the services of for-hire motor carriers. Local and regional hauls account for almost half of all truck revenues and are the dominant arrangement for private carriers. Most of their operations are moves of less than 100 miles. This industry segment's average length of haul is 51 miles.

Interstate For-Hire/Common Carriers are companies who provide transportation services to the general public. A common carrier must obtain licensing and publish rates through the Surface Transportation Board and the PUC. For-hires travel much farther distances than their private counterparts, with their minimum hauls being from 200 miles to 1,500 miles or more per trip. The average trip is 1300 miles. Distance varies based on the state, territory, or possession being served. A single driver can drive 450 to 500 miles per day. Team or relay driving can go farther in a 24-hour period. Dedicated service can move goods cross-country by the third morning. More normal times are 4- 7 days.

A common carrier may be referred to as the prime carrier.

A Prime Carrier is the principal or overlying common carrier. The prime carrier enters into a contract with a shipper to provide transportation services, but in turn, engages the services of another authorized common carrier or independent contractor (subhauler) to perform the transportation service. They offer service either on a truckload (TL) or on a less-than-truckload (LTL) basis.

Truckload (TL) means the goods of only one customer are being carried on the vehicle. There generally are low startup costs associated with these operations because the truck equipment is the primary expense.

Less-than-truckload (LTL) means a vehicle is carrying the goods of many customers. This service has much higher startup costs because in addition to equipment costs, assembly and distribution facilities must be created to consolidate and then distribute the freight.

Intermodal refers to the use of various forms of transportation (ships, trains, planes and trucks) used to move goods from other countries to the United States and across the continent.

In the 1980's, trucks spearheaded the just-in-time revolution. It was motor carriers and shippers who were the first to experiment with set times for pick up and delivery so that less inventory was needed in the overall production process. In essence, their actions began integrating transportation into manufacturing and distribution as another business process.

Motor carriers face competition from airfreight for high value commodities and from railroads for lower value goods.

On high value goods, the competition pits traditional airfreight services against package express or courier services as well as expedited carriers. Because transportation costs are a small portion of the purchase price of these goods, firms are willing to pay premium rates. In this segment of the industry, delivery is predicated upon strict time and service requirements.

Air freight has an average value of $26 per pound and package express $15 per pound, while trucking's general average shipment value is 35 cents per pound. Here carriers compete for commodities like computers and related goods, fresh flowers and foods, as well as letters and business documents.

On lower value goods, trucks share a dual natured relationship with railroads. They cooperate in providing intermodal services. They also compete to capture market share on goods like automobiles and auto parts, food and kindred products, and intermodal shipments. Weight and distance affect this competition.

In general, under 100 miles, competition occurs only on shipments weighing more than 60,000 pounds.

At 100-300 miles, competition occurs on shipments weigh between 60,000 and 90,000 pounds.

At 300 -500 miles, competition occurs on shipments that weigh between 30,000 and 90,000 pounds.

At 500 miles or more, commodities weigh between 10,000 and 60,000 pounds.
It should be noted that shipments in excess of 50,000 normally require a special permit to operate configured as a single load. The heaviest single trucks usually serve this part of the market or longer combination vehicles that run under more tightly controlled conditions than general trucking.

Because of these vehicles' ability to compete with railroads, the rail industry is keenly interested in assuring that the current competitive market environment is maintained.

For trips under 100 miles, it is private carriers who are providing the competition. For trips over 100 miles, it is the for-hire motor carriers who are doing so. The only exception is for loads weighing between 30,000 and 60,000 pounds moving between 100-200 miles. Here, private trucking seems to be the carrier of choice.

The reason competition is so fierce between trucking and railroads is that while these goods are not the highest value freight for the trucking industry; they are high return for the railroad industry. Railroads see the returns made from these shipments, as well as those made from intermodal shipments, as key to maintaining their profitability.

The relationship between railroads and truck lines is the most complicated of the modes of transportation because trucks have the ability to both generate freight for the railroads and take it away from them.

Railroads and trucks are business partners in providing intermodal services. Trucks provide the short haul connections between the firm sending the freight and the railroad as well between the railroad and the customer receiving the freight. Trains provide the long haul service between origin and destination.

When trucks and trains compete, they compete for types of traffic, mostly the goods which give the railroads their higher profit margins - intermodal, transportation equipment (automobiles - finished products as well as assembly supplies), chemicals, and food products. Intermodal freight is subject to competition from long distance trucking companies. As a result, even when there is a rail/truck business relationship with one motor carrier for an intermodal move, there is a competitive tension with other long distance truckers seeking to capture the same business.

  • Employee leasing is among the fastest growing service industries.
  • Although widespread employee leasing is relatively new, it has been used by the trucking industry for many years. Three factors in particular have contributed to the growth of the employee leasing industry:
    1. Companies want to avoid the administrative work involved in keeping payroll records and filing payroll tax returns.
    2. Small companies are unable to offer the same fringe benefits as larger companies. Leasing organizations, by pooling the leased employees and their own staff, can provide greater benefits at a lower cost.
    3. Employee leasing has been used in pension planning. In a typical employee leasing arrangement, the recipient of the services terminates some or all of its employees and then leases back the same workers for the same jobs, but as employees of the leasing agency. The workers work full time for the recipient, and their duties are indistinguishable from their previous relationship as employees of the recipient.
  • Once this arrangement is entered into, all administrative responsibilities such as payroll preparation, benefits administration, and Federal and state returns, become the responsibility of the leasing organization.
  • The labor leasing company derives its income from administrative fees. They invoice the following elements: wages, employment taxes, workman's compensation, union benefits, meal reimbursement, and an administrative fee.
Shipper's Agents:
  • Originally, shippers' agents were brokers for the railroads to sell space on railroad cars. Today, they are still brokers of railroad transportation. However, they have expanded to include authorized motor carriers and steamship lines.
  • The shipper's agent is a bonafide agent of the shipper who performs the shipper's transportation function. The shipper's agent arranges for and routes the transportation of goods from one point to another. Other duties may include the settlement of claims and payment of the carrier's freight invoices. Ultimate payment of freight bills, however, is the responsibility of the shipper.
  • The shipper's agent does not take possession of the goods transported nor do they issue a bill of lading. Instead, the shipper prepares the bill of lading. Each intermodal carrier engaged in the transportation function (common carrier, steamship company, and railroad) assumes responsibility for the goods while they are in transit.
  • Since the shipper's agent does not take title to the goods, it is important for them to track the movement of each shipment. They do this through a computer network that can track the movement of each shipment by trailer or container number.

Freight Forwarders offer the combination of services provided by a shipper's agent and a common carrier in handling the transportation of goods from one point to another.

Prior to 1975, the ICC regulated the operations of freight forwarders. The ICC defines freight forwarder as a person holding itself out to the public to provide the transportation of property for compensation in interstate commerce. In general, they handle the functions of the shipping department for their client

Freight forwarders usually specialize in the type of freight transported and the type of transportation carriers used. This provides them with expertise in handling the paperwork involved with certain types of transactions.

  1. Common Carriers A freight forwarder performs the same function as a shipper's agent, but operates as a common carrier. As a common carrier, they assume the responsibility for the freight by taking title to the goods and issuing their own bill of lading.
Other services that can be offered to the shipper include cartage, warehousing, the transloading of goods, deconsolidating shipments as the break bulk agent, and clearing customs as the customhouse broker.
  1. Air Freight Forwarders Airfreight forwarders primarily handle the transportation of foreign goods into the country (import) and of domestic goods out of the country (export). At this time, airfreight forwarders are unregulated but IATA sets industry standards.
  2. Consolidators A consolidator purchases container space below the market price established by the carrier and sells the container space to other freight forwarders. The difference between the purchase price and sales price is the profit. The consolidator normally has six months to a year to fill the container space. If the consolidator is unable to fill the container, the carrier does not charge the consolidator for the unfilled space; however, this factor will enter into subsequent negotiations for container space.
When the consolidator packs the goods for the shipper, they will prepare a shipping invoice and a packing list. The shipping invoice will list the items being shipped along with their value, while the packing list will only show the items being shipped. The packing list is provided to the break bulk agent at the destination point so they can breakdown the shipment and compare what was received with what was shipped.
  1. NVOCC An ocean freight forwarder is called an NVOCC (non vessel operating common carrier) and must be registered with the Federal Maritime Commission.
Custom House Brokers
The customhouse broker works for the importer to gain the release of goods from U.S. Customs. The custom house broker will determine the duties payable to U.S. Customs and arrange for the transportation of goods from the ocean or airfreight carrier to the importer (consignee).
  • A customhouse broker may also be a consolidator or freight forwarder. But a consolidator or freight forwarder cannot be a customhouse broker without meeting the licensing requirements of U.S. Customs.
  • While the goods are clearing customs, the airline or Steamship Company retains actual possession of the goods. Generally, a container will not be cleared from U.S. Customs unless all shipments in that container are cleared. However, if the goods are transferred to a bonded customs warehouse or container freight station (CFS), then a single shipment can be released as it clears customs.
  • To expedite the filing of the Form 7501 and payment of the customs duties, the customhouse broker has the option of using the Automated Commercial System (ACS) or using the old system which requires the writing of a manual check and the delivery of the check and the Form 7501. The Automated Broker Interface (ABI) allows the filings to take place electronically and for the broker to pay the duties by check or by electronic transfer. The automated manifest system (AMS) serves as a merchandise inventory and electronic cargo release system through the electronic exchange of information between U.S. Customs and the importing carriers.

In addition to the customs duties, the customhouse broker may also be responsible for arranging the delivery of the freight; providing customs bonds for the insurance of cargo duties or payments to U.S. Customs; and obtaining a release from other agencies.

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Government Regulatory Requirements





Food and Drug Administration


Bureau of Alcohol, Tobacco and Firearms


Drug Enforcement Agency


Fish and Wildlife Service


Department of Transportation


Department of Agriculture


Environmental Protection Agency


Federal Communications Commission


Department of Defense


Surface transportation Board


Effect of government regulation on audit

Government agencies (other than the IRS) are mostly concerned with:

  1. Safety violations.
  2. Price floors.
  3. Weight classes and rates.

For the most part, the Government agencies are interested in monitoring items that are of little use in an audit of a tax return. They are mainly interested in the following areas:

  1. Freight Rates.
  2. Issuance of operating permits.
  3. Authority to establish routes and types of commodities.
  4. Provides guidelines on financial and accounting practices.
  5. Provides safety and hazardous materials guidelines.
  6. Hours of service for drivers.

Although the authority of some of these regulatory agencies has been diminished due to deregulation of the industry, their presence is still effective in setting standards for the industry to follow.

A. Federal Requirements

There are three Federal agencies that are involved in the regulation of trucking companies.

U.S. Customs
U.S. Customs is the Federal agency, which oversees the entry of foreign goods into the United States. They operate under Title 19 of the Code of Federal Regulations. They issue customs house licenses which allows a third party to act as an agent for the importer (consignee) in processing the paperwork and payment of customs duties before the goods are released for their final destination.

Department of Transportation (DOT)
DOT is responsible for distributing the Federal funding for transportation. In 2001, over $30 billion was collected in highway use taxes by Federal and state governments which is used for the construction and repair of roads. The Federal Motor Carrier Safety Administration (FMCSA), a department within the DOT, sets and enforces the Motor Carrier Safety Regulations (MCSR) which set safety standards for the design, manufacture, and operation of transportation equipment. The FMCSA regulates the operations of private carriers (such as, specifies the number of hours a driver can work without rest, the interstate transport of chemicals and other hazardous cargoes). The FMCSA requires a record be kept on the inspection and repair history of vehicles used in commercial carriage. The DOT web site is a valuable tool to find specific information about every trucking company that operates in the U.S.

DOT Web Address:

Information available on each trucking company from the DOT Web Site:

  • Accidents/Crashes reported from all states
  • Insurance Companies that furnish coverage,
  • Insurance coverage limits
  • Self Insurance
  • Number of trucks owned
  • Number of drivers
  • Number of miles driven per year
  • Type of freight hauled
  • Penalties charged by DOT (each specific infraction is listed by date and location)
  • Safety inspection results (each specific inspection is listed by date, vehicle #, and location)
  • Federal Motor Carrier Safety Administration (FMCSA) regulations
  • DOT & FMCSA contacts

Federal Motor Carrier Safety Regulations Section 395.3 sets Maximum Driving Time.
Prior to January 4, 2004, a driver shall not exceed:

  1. More than 10 hours following 8 consecutive hours off duty; or
  2. For any period after having been on duty 15 hours following 8 consecutive hours off duty,
  3. More than 60 hours in any consecutive 7-day period or
  4. More than 70 hours in any consecutive 8-day period.

New driving time Limits beginning January 4, 2004:
The new rules impose three basic limits.

  1. Maximum driving time is 11 hours. After 11 hours behind the wheel, the driver must have 10 hours of rest.
  2. Maximum on-duty time is 14 hours. After 14 hours on duty (which may or may not include up to 11 hours of driving) the driver cannot operate a commercial vehicle until he has had 10 hours of rest. The 14-hour on duty time begins when a driver comes on duty and can only be stopped with a minimum two-hour break in the sleeper.
  3. Maximum 60 hours on duty in any seven consecutive days. If the company operates 7 days per week, the maximum is 70 hours in any eight consecutive days. Drivers may restart the 7/8 day period with 34 hours or more off duty.

Effective October 1, 2005:

Commercial motor vehicle drivers using their sleeper berth provision must take at least 8 consecutive hours in the sleeper berth, plus 2 consecutive hours either in the sleeper berth, off-duty or any combination of the two.


Federal Maritime Commission (FMC)
FMC regulates the overseas shipping industry. They are responsible for issuing licenses for non vessel operating common carriers and regulating the tariffs charged for ocean freight shipments.

B. State Requirements

There are two state agencies that have regulatory authority over the trucking industry in each state the Public Utilities Commission and the Department of Motor Vehicles.

Public Utilities Commission (PUC)

The Tariff and License branch in the transportation division of the PUC regulates intrastate trucking. Intrastate trucking refers to freight shipments commencing and concluding within the state. Highway common carriers operating within the boundaries of one state (intrastate trucking) are required to have PUC operating authority or a trip permit (bingo stamps) to carry freight within the state. The registered owner must also file proof of insurance (certificate of insurance) with the PUC.

The PUC issues operating permits and sets minimum and maximum intrastate freight rates. The PUC requires trucking firms, depending on the size of the annual gross receipts, to file quarterly and/or annual reports.

Department of Motor Vehicles (DMV)

The DMV requires the registration of vehicles and licensing of drivers. To register or renew the registration on a tractor, the owner has to show proof of payment for the Heavy Vehicle Use Tax, Form 2290. A schedule of equipment registered to the company or subhauler is required to be filed with the Form 2290. DMV records when a specific vehicle was licensed and titled (placed in service - for depreciation purposes). DMV "title file" records purchase price, from whom a vehicle was purchased and financed. DMV "title file" also records the date and to whom a vehicle was sold and the reported sale price. For one stop shopping telephone numbers for each state DMV, contact the LMSB trucking technical advisor.


A highway common carrier or contract carrier is required to file their tariff rates or contract rate schedule with the PUC. These rates are dependent upon the classification of goods, type of load, weight, and distance the freight is to be hauled. Common tariff rate publications are:

  1. Distance Table 8 issued by the PUC.
  2. Hazardous Material Tariff.
  3. National Motor Freight Classification.
  4. Rocky Mountain Tariff.

C. Local Requirements

For the most part local Government agencies are interested in monitoring items that are of little use in an audit of a tax return. A few counties and cities charge a gross receipts tax for income earned in their area.

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Significant Law and Important Issues

A. Coordinated Issues - There are no coordinated issues in the trucking Industry as of September 30, 2007.

B. Emerging or Other Significant Issues



Brief Summary of Issue


Sub haulers may have more than one truck and will hire other drivers for these vehicles.
In many instances these drivers are treated as independent contractors.
They are issued Forms 1099 or nothing at all.

Potential employment tax issue: Whether the drivers are independent contractors or employees?

See "Independent Contractor or Employee?"  Training 3320-102 (Rev. 10/96) TPDS 842381. Available on IRS Home Page. See I.R.C. § 3406 for backup withholding rules.

Port haulers

An area of concern is the treatment of port haulers as contract labor.

Port haulers are part of the "landbridge" operation in transporting goods from the harbor to an inland destination.

To haul freight out of the harbor, the port hauler must present a CHL card
(Customhouse license).

The license is obtained by the employing company and not the port hauler.

The port haulers will represent themselves to be employees of the company when they apply for the Cartmen/Lightermen Identification Card (Customs Form 3873) from U.S. Customs.

The U.S. Customs Service considers this to be a violation of Chapter 1,
Part 112 of the U.S. Customs Service Code, since the CHL was obtained through a misstatement of material fact.

The company represents to U.S. Customs that drivers are employees of the corporation when they are paid as independent contractors.

The issue is whether the driver is an employee or independent contractor.

See the 20 common law factors and the safe haven relief provision of IRC Section 530.

Com-Check or T-Check Account balance

Com-Check and T-Check accounts are similar to a checking account.
They are the accounts from which drivers receive advances for expenses on the road.

Taxpayers have been found to deduct all payments to Com-check and to
T-Check as an expense. In many cases the Com-check or T-check account is not listed on the balance sheet.

The issue is whether the Year-End balance in the Com-Check or T-Check Account is deductible. Another issue is whether the payments from the account are truly for a business purpose. See I.R.C. § 162.

Taxpayers have been found to use the account for personal cash.

Depreciation - Basis of Assets

A number of issues have been found in depreciation as follows:

  1. Whether the basis of new equipment is reduced for the value of trade-ins, rebates etc., and that the trade-in has been removed from the depreciation schedule
  2. Whether basis has been stepped up, in transfers between related parties
  3. Tires. See issue (last issue in this section).
  4. Taxpayers have been found to place equipment on the depreciation schedule before it is received. Example: Where tractor/trailer units were ordered in 1999 and depreciated in 1999, but received and placed in service in 2000.
  5. Bonus depreciation.
  6. Whet Whether 30 percent bonus depreciation is allowable where the
    taxpayer has entered into a contract for purchase of assets prior
    to 9-11-2001.
    Whether 50 percent bonus depreciation is allowable where the
    taxpayer has entered into a contract for purchase of assets prior
    to 5-6-2003.

See I.R.C. § 168

Depreciation of
Terminals, Parking lots, Docks, fences, lighting etc

New trucking terminal buildings, parking lots, lighting and etc are being constructed as companies expand.

The issue is the MACRS life that must be used for depreciation.

For an audit technique guide on Cost Segregation studies go to the Capitalization Technical Advisor web site.

Excise Tax

The following are only a few of the many Retail Excise Tax issues in trucking companies.

  1. Whether the 12 percent Retail Tax applies where the taxpayer purchased a fleet of tractors and trailers excise tax-free by claiming they were to be used exclusively outside the U.S. But the taxpayer could not prove that the vehicles were licensed and used outside the U.S.
  2. Whether the 12 Percent Retail Tax should be charged on items added to the truck, tractor or trailer in the first 6 months after it was purchased. For a list of typical items added, go to the trucking technical advisor web site
  3. Whether the 12 percent Retail Tax should be charged where a new vehicle has been created from a glider kit.
  4. Highway Use Tax Form 2290 on Heavy Vehicles e.g. truck/trailer combinations equipped to carry or haul 50,000 LBS. GVW or more. "Equipped" generally means the vehicle has a pintle hook or ball hitch which makes it capable of towing a trailer. If the combined weight of the truck and trailer exceeds 50,000 Lbs., highway use tax is due on the truck or tractor.
  5. The premiums paid for certain insurance policies issued by foreign insurers may be subject to an excise tax. I.R.C. §§ 4371 and 4372
  6. Excise tax on airfreight and air passengers.
  7. Used oil blended with diesel fuel.
  8. Whether the 12 percent Retail Tax should be charged on Auxiliary Power Units (APU's).

Forms 1099

Whether Forms 1099 are required to be issued to individual owner-operators who haul “freight”.
Payments to truck owner-operators may be excepted as “freight” under Treas. Reg. Sec 16041-3(c).
But household goods hauled by a moving company are not considered “freight”.
Letter Ruling 199932048, June 17, 1999

Fuel Surcharge

  Income –


Owners and operators of heavy truck/tractors are paid a fuel surcharge by the companies to whom they lease their vehicles.  The companies in many cases have failed to included the fuel surcharge income on the 1099 issued to the owner/operator.  Therefore the fuel surcharge income has not been reported by the owner/operator.  Unreported fuel surcharge income can total $30,000 to $50,000 per year for one truck/tractor.  With diesel fuel at $3.00 per gallon the fuel surcharge is $0.31 per gallon.

150,000 miles driven per year X .31 = $46,500< /P >

Self insurance
Captive Insurance

Due to the increasing cost of insurance, many taxpayers are entering into various kinds of insurance including Self-Insurance, Captive, and Foreign Insurance.

The issue is whether the total amount billed for insurance arrangement is an insurance premium deductible under I.R.C. § 162.

Following is law related to various insurance issues:
Self-Insurance: Rev Rul. 57-485, 1957-2 C.B. 177; Rev. Rul. 60-275, 1960-2 C.B. 43; Rev. Rul. 77-316, 1977-2 C.B. 53, obsoleted by, Rev. Rul. 2001-31, 2001-1 C.B. 1348; Rev. Rul. 79-338, 1979-2 C.B. 212.

Retro Rated Insurance: Ltr. Rul. 8637003 and Ltr Rul 8638003

Captive Unrelated: Rev. Rul. 88-72, 1988-2 C.B. 31, obsoleted by, Rev. Rul. 2001-31, 2001-1 C.B. 1348

Group Captive: Rev. Rul. 78-338, 1978-2 C.B. 107, modified by, Rev. Rul. 2001-31,
2001-1 C.B. 1348 and Rev. Rul. 80-120, 1980-1 C.B. 41, modified by, Rev. Rul. 2001-31, 2001-1 C.B. 1348

With the issuance of Rev. Rul. 2001-31, 2001-1 C.B. 1348, the IRS will no longer invoke the economic family theory with respect to captive insurance transactions. The Service may, however, continue to challenge certain captive insurance transactions based on the facts and circumstances of each case. See, e.g., Malone & Hyde v. Commissioner, 62 F.3d 835 (6th Cir. 1995) (concluding that brother-sister transactions were not insurance because the taxpayer guaranteed the captive's performance and the captive was thinly capitalized and loosely regulated); Clougherty Packing Co. v. Commissioner, 811 F.2d 1297 (9th Cir. 1987) (concluding that a transaction between parent and subsidiary was not insurance).

I.R.C. § 461(h)(5) states that a deduction for a reserve for estimated expenses is not allowable.

See Rev. Rul. 81-93, 1981-1 C.B. 322, regarding a change in accounting method when a reserve is disallowed.

The premiums paid for certain insurance policies issued by foreign insurers may be subject to an excise tax. I.R.C. §§ 4371, 4372, 4373 and 4374.

Leased Employees
Per Diem/ Meal

Small to medium size trucking companies are leasing drivers and other workers from employee leasing companies.  Approximately 50 percent of all trucking companies pay per diem (meal reimbursement) to their drivers.  Many labor leasing companies are treating up to 40 percent of driver compensation as "per diem"/meals expense, not as wages. 


  1. Whether payments to employees for the alleged purpose of  reimbursing travel costs are made pursuant to an accountable plan under Treas. Reg. § 1.62-2, such that they are excluded from employees’ gross income and from employment tax requirements, but are subject to the   274(n) deduction limitation.
  2. Who is liable for the 50 percent reduction of meals as required by I.R.C. § 274(n), the trucking company, or the employee/labor leasing company?  
  3. Whether per diem represents “meals only” or both “meals & lodging”.
  4. Whether the employee leasing company has reported per diem payments from their customers as income.  A number of companies have failed to report per diem payments from customers as income and in turn have not deducted the per diem as an expense, thereby avoiding the 274(n) limitation on meal expense.
  5. Whether or not an employer can pass responsibility for the I.R.C § 274(n) adjustment to their client in a 3 party relationship under I.R.C. §274(e)(3)(B)

See I.R.C. § 274(n); Rev. Rul. 2006-56, Internal Revenue Bulletin 2006-46, 11-13-2006, Rev. Proc. 2006-41, Internal Revenue Bulletin 2006-43, 10-23-2006, Rev. Proc.  96-64, 1996-2 C.B. 427; Rev. Proc. 97-59, 1997-2 C.B. 594; Rev. Proc., 2000-9, 2001-1 C.B. 280; Rev. Proc. 2000-39, 2000-2 C.B. 340; Rev. Proc. 2001-47, 2001-2 C.B. 332; Rev. Proc. 2002-63, 2002-2 C.B. 691; Rev. Proc. 2003-80, 2003-2 C.B. 1037; Rev Proc 2004-60,   2004-2 C.B. 682; Rev. Proc. 2005-10, 2005-1 C.B. 341; Rev. Proc. 2005-67, 2005-42 IRB 729 (Oct. 17, 2005); Rev. Proc. 2006-41, 2006-43 IRB 777 (Sept. 29, 2006); Rev. Proc. 2007-63, 2007 IRB LEXIS 865 (Sept. 27, 2007).  

See also Transport Labor Contract/Leasing Inc. v. Commissioner, 123 T.C. 154 (2004) ), rev'd on other grounds,  461 F.3d 1030 (8th Cir. 2006); Boyd v. Commissioner, 122 T.C. 305 (2004); Beech Trucking Co., Inc. v. Commissioner, 118 T.C. 428 (2002). 

Leased Equipment

Equipment leases, Lease vs. purchase, Lease stripping tax shelter, TRAC Lease - Refund of residuals on lease termination are equipment leasing issues.

The most common issue is Capitalized Leases, where the lessee is not the owner for tax purposes. Only the owner may depreciate the asset.

Maintenance and

Rebuilding of engines, tanks and cabs on tractors, and rebuilding of trailer beds, boxes and frames is a common practice in the trucking industry.

The issue is whether these costs are deductible as a current expense or are a capital expenditure.

See LaSalle Trucking Co. v. Commissioner, T.C. Memo 1963-274.

Rev. Rul. 2001-4, 2001-1 C.B. 295
Costs must be capitalized to the extent they materially add to the value of,
substantially prolong the useful life of, or adapt the airframe to a new
or different use. In addition, costs incurred as part of a plan of rehabilitation,
modernization, or improvement must be capitalized.

Assembly of glider kits into new trucks is a Retail Excise Tax issue in addition to the issue of expense vs. capital expenditure. See Treas. Reg. § 145.4052.


Taxpayers want a deduction for fines and penalties that they pay.
Trucking companies incur traffic and weight fines regularly.

Fines should be listed, by the taxpayer on Schedule M-1, as not deductible.

The issue is whether fines and penalties are deducted. See I.R.C. § 162(f).

For instructions to find Dept of Transportation penalties on specific trucking companies go to the trucking technical advisor web site.

Prepaid Expenses

Accelerated Expenses and Timing of Income Recognition by Related Parties


The issue is whether expenses paid in the current year that are applicable to the subsequent year are deductible in the year paid.

  1. Whether a trucking company is entitled to a deduction in Year 1 for 3.5 months of leased driver expenses that it prepaid by transfer of accounts receivable to a related driver leasing LLC.
  2. Whether a driver leasing LLC may defer income reporting until year 2 for the prepaid income that it received from the related trucking company in Year 1.
  3. If the trucking company can deduct the expense and the related driver leasing LLC can delay reporting the income, may the Service disregard the form of the transaction in order to force a matching of income with the deduction?

Transactions entered into solely for the purpose of tax avoidance, which lack any business purpose, are shams and without effect for Federal income tax purposes. Frank Lyon Co. v. United States, 435 U.S. 561 (1978); Knetsch v. United States, 364 U.S. 361 (1960). The leading case supporting the existence of a "sham transaction doctrine" is Gregory v. Helvering , 293 U.S. 465 (1935).

See I.R.C. §§ 446(e), 461 (a), 461(h), and 482; Treas. Reg. §§ 1.461-4(d) and 301.7701-3; Rev. Proc. 71-21, 1971-2 C.B. 549, and Rev. Proc. 2004-23, IRB 2004-16 785.


It is a common practice for the manufacturers of engines, brakes, axles, tires, and other parts to offer incentives for trucking companies to specify their parts in new tractors.

All diesel engine manufacturers offer rebates if you specify their engine in at least 3 new tractors.

Some trailer manufacturers offer rebates if you purchase their trailers.

It is also common practice for fuel stops, business-to-business (B2B) internet companies and fuel cards to issue monthly rebates on fuel purchased.

Rebates should be reported as income, as a reduction of expense, or as a reduction to the cost/basis of the new asset. For a discussion of the various ways that rebates should be reported, See I.R.C. § 61; Rev. Rule 76-96, 1976-1 C.B. 23; and White v. Commissioner, 55 T.C. 739 (1971), aff'd, 458 F.2d 989 (3d Cir. 1972), cert. denied, 409 U.S. 876 (1972).

Related Party Transactions

Surtax Allocations have been found to not include all related companies.   It’s common to split a trucking company up into different entities owned by various family members.

In related party transactions the shifting of income and expense from one entity to another has been found to be a problem in the following areas:

  1. Where the fair rental value of the equipment or real property is excessive (disguised dividends), the services of an engineer can be requested by submitting Form 5202.
  2. Whether the rental activity qualifies as a passive activity per I.R.C. § 469(c)(2) and the income generated is passive income and is being offset against other passive losses, or are passive losses being generated to offset other passive gains.
  3. Whether the shareholder materially participates in the operations of the activity per I.R.C. § 469(h) to offset losses against ordinary income.


These issues include reserves for overcharge claims, cargo loss/damage claims, personal injury claims, workers compensation claims, and other estimated liabilities.

Sales of Assets
v. Like Kind

The issue is whether they must report the sale and recapture depreciation, or whether they can report the sale as a like kind exchange and reduce the cost of newly acquired assets.

It is common for companies to sell their used equipment.

See I.R.C. § 1031; C.Bean Lumber Transp. Inc., vs. United States , 68 F.Supp.2d 1055
(W.D. Ark. 1999).


Taxpayers have been deducting the cost of tires on new and used trucks, tractors and trailers when the vehicles are purchased.

  1. Whether the cost or fair market value of tires purchased for use on newly acquired trucks, tractors and trailers must be capitalized and recovered over an appropriate ACRS or MACRS class life or whether such cost or fair market value may be deducted in the year of purchase.
  2. Whether replacement tires on leased vehicles must be capitalized and depreciated or whether they can be expensed when placed in service.

See Rev. Proc. 2002-27, 2002-1 C.B. 802.

To minimize disputes over the useful lives of original and replacement vehicle tires, the Service released Rev. Proc. 2002-27, 2002-1 C.B. 802. It permits taxpayers to treat a qualifying vehicle's tires as part of the vehicle, if they adopt the original tire capitalization (OTC) method for all qualifying vehicles.
If tires last longer than one year and a taxpayer does not adopt the OTC method it must treat tires as a separate asset from the associated vehicle and depreciate them over the appropriate MACRS recovery period (normally 5 years for trucking companies).

See CCA 200307087 issued on January 28, 2003 which relates to retread tires.

Most truck, tractor, and trailer tires last much longer than 1 year.

C. Recent or Pending Legislation


Effective Date


Summary and Impact of Legislation


Hours of Service Rules

DOT Regulations §395.3 Maximum driving time
The new rules impose three basic limits.

  1. Maximum driving time is 11 hours. After 11 hours behind the wheel, the driver must have 10 hours of rest.
  2. Maximum on-duty time is 14 hours. After 14 hours on duty (which may or may not include up to 11 hours of driving) the driver cannot operate a commercial vehicle until he has had 10 hours of rest. The 14-hour on duty time begins when a driver comes on duty and can only be stopped with a minimum two-hour break in the sleeper.
  3. Maximum 60 hours on duty in any seven consecutive days. If the company operates 7 days per week, the maximum is 70 hours in any eight consecutive days. Drivers may restart the 7/8 day period with 34 hours or more off duty.


Meal/Per diem deduction

Section 274(n)(3) provides a special rule that increases the percentage that can be deducted for meals of persons, such as truck drivers, who are subject to the hours of service limitations established by the Department of Transportation.

Meals Deductible Percentage Under 274(n)(3)
55% for years beginning in 1998, 1999
60% for years beginning in 2000, 2001
65% for years beginning in 2002, 2003
70% for years beginning in 2004, 2005
75% for years beginning in 2006, 2007
80% for years beginning in 2008, 2009

Trucking associations have lobbied for several years to return the meals deduction to 100 percent for truck drivers.

D. Specific Industry Related Tax Law

  1. Write off of Intrastate Operating Authority in 1994 is allowable. Oak Harbor Freight Lines, Inc. v. Commissioner, T.C. Memo 1999-291.
  2. A trucking company could deduct paid expenses benefiting the next tax year.
    The Seventh Circuit, reversing and remanding the Tax Court, held that an accrual-method trucking company was entitled to deduct license and insurance expenses that were paid in year 1 but benefit tax year 2.
    Under Treas. Reg. §1.263(a)-4(f)(1), amounts paid to acquire or create intangibles where the benefit for the taxpayer does not extend beyond 12 months (12 month rule) do not have to be capitalized. U.S. Freightways Corp. v. Commissioner, 270 F.3d 1137 (7th Cir. 2001)
  3. Meal/Per Diem Expense - IRC 274(n) Adjustment:
    See Transport Labor Contract/Leasing Inc. v. Commissioner, 123 T.C. 154 (2004); Boyd v. Commissioner, 122 T.C. 305 (2004); Beech Trucking Co., Inc. v. Commissioner, 118 T.C. 428 (2002).

E. Important Revenue Rulings or Revenue Procedures

    Section 4.04 of the following revenue procedures allows a special per diem rate for meals and incidentals of drivers in transportation industry.


Rev. Proc. Period Limit
2007-63 10-01-07 to present $52
2006-41 10-1-06 to 9-30-2007 $52
2005-67 10-1-05 to 9-30-2006 $52
2005-10 01-1-05 to 9-30-2005 $41
2004-60 10-1-04 to 12-31-2004 $41
2003-80 11-1-03 to 9-30-2004 $41
2002-63 10-1-02 to 10-31-2003 $40
2001-47 10-1-01 to 9-30-2002 $38
2000-39  10-1-00 to 9-30-01 $38
2000-9 1-1-00   to 9-30-00 $38









2.    Rev. Rul. 2006-56 - Nonaccountable meal reimbursement plans: 
Amounts treated as paid under a nonaccountable plan are included in the employee's gross income, must be reported as wages or other compensation on the employee's Form W-2, and are subject to withholding and payment of employment taxes. 
This may constitute:
(1) all payments under the arrangement if the arrangement does not satisfy each of the requirements of business connection, substantiation, and return of excess,
(2) all payments under the arrangement, even if each of the requirements of business connection, substantiation, and return of excess are satisfied, if the arrangement violates the anti-abuse rule of § 1.62-2(k),  
(3) payments made under a separate arrangement for other bona fide but nondeductible business expenses, or
(4) payments to an individual employee that are in excess of his or her substantiated expenses and, although the arrangement requires the excess to be returned, the employee does not return the excess to the employer within a reasonable period of time.


Rev. Proc. 2002-27, 2002-1 C.B. 802, provided a safe harbor method of accounting (original tire capitalization method) for the cost of original and replacement tires for vehicles used in various business activities.

F. Important Court Cases




Oak Harbor
Freight Lines vs. Commissioner

Oak Harbor Freight Lines v. Commissioner, T.C. Memo. 1999-291.Loss on Intrastate Operating Authorities are deductible in 1994.




Beech Trucking v. Commissioner

Beech Trucking Co., Inc. v. Commissioner, 118 T.C. 428 (2002). Trucking corporation is the common-law employer of drivers. The per diem payments made to the drivers are for meal expenses, and that the per diem payments are subject to the 50 percent limitation of section 274(n).


Boyd v. Commissioner

Boyd v. Commissioner, 122 T.C. 305 (2004). Despite the presentation of evidence as to the estimated, non-meal travel expenses incurred by drivers, the Court held that the taxpayer failed to establish a basis for deducting 80 percent of the per diem allowance paid to the drivers. Taxpayer may only deduct 50 percent of the per diem allowance paid to the drivers.


Transport Labor Contract/Leasing Inc. v. Commissioner

Transport Labor Contract/Leasing Inc. v. Commissioner   , 123 T.C. 154 (2004). TLC is the common-law employer of drivers and is subject to the 50 percent limitation of section 274(n). The trucking company customers are not the employer and are not liable for the 274(n) adjustment.


William J. McNeill v. Commissioner

McNeill v. Commissioner, T.C. Memo. 2003-65. The Tax Court, denying a truck driver's meal and travel expenses, held that for years 1998-1999 the driver had no tax home under section 162(a)(2) and wasn't entitled to travel expenses.




Marin I. & Anita J. Johnson v. Commissioner

Johnson v. Commissioner, 115 T.C. 210 (2000). Taxpayers' deduction was limited to the incidental expense portions of the applicable M&IE rates.


Jim L. Westling, v. Commissioner

Westling v. Commissioner, T.C. Memo 2000-289 (2000). Taxpayer was entitled to deduct the incidental expense portion of the applicable federal per diem rates for meals and incidental expenses in § 4.03 of Rev. Proc. 96-28, 1996-1 C.B. 688

G. Technical Advice Memorandums - Field Service Advices







Ltr Rul 199932048 

1099's are NOT required to be issued to owner operators.



Retro Rated Insurance



Retro Rated Insurance


CCA 200307087

Trucking companies who don't elect the safe harbor method for depreciating tires (Rev Proc 2002-27) must treat the original, replacement and retread tires as a separate asset and depreciate them under MACRS class 42.0 (5 year recovery period) if they last longer than one year.

5-12-2006 TAM 142230-05 Prepaid service expense paid to a related party is not deductible until there is a fixed liability.


TAM 142802-05

Prepaid service Income is taxable when received from related company

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Alternative Issue Resolution Considerations


Prepaid Expenses

Expenses paid in the current year that are applicable to the subsequent year, are deductible in the year paid.
U.S. Freightways Corp. v. Commissioner, 270 F.3d 1137 (7th Cir. 2001)

Meals Expense - 50 percent reduction

IRC Sec. 274(n). Rev. Proc. 96-64, 1996-2 C.B. 427; Rev. Proc. 97-59, 1997-2 C.B. 594; Rev. Proc., 2000-9, 2001-1 C.B. 280; Rev. Proc. 2000-39, 2000-2 C.B. 340; Rev. Proc. 2001-47, 2001-2 C.B. 332; Rev. Proc. 2002-63, 2002-2 C.B. 691; Rev. Proc. 2003-80, 2003-2 C.B. 1037; Rev. Proc. 2004-60, 2004-42 I.R.B. 682; Rev. Proc. 2005-10, 2005-3 I.R.B. 341.


Where tires on newly purchased trucks, tractors, and trailers last longer than one year; they should be capitalized and depreciated over the life of the vehicle.
See Rev. Proc. 2002-27, 2002-1 C.B. 802 & CCA 200307087.


Penalties should be listed as non-deductible on Schedule M-1. IRC Sec. 162 (f).

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Industry Resources

A. WEB Sites


Name of Site

Summary and Available Information

ATA Truck Line

American Trucking Associations.
Lists current tax legislation changes secured by ATA lobbyists. Current affairs affecting the trucking industry.

Bureau of Transportation Statistics

Statistical reports on operating costs, revenue, miles driven, gallons of fuel consumed etc.

Federal Motor Carrier Safety Administration

Specific operating, safety, insurance and etc. information on specific motor carriers.

Owner-Operator Independent Drivers Association

OOIDA advocates the views of professional truckers through its interaction with state, provincial and federal government agencies, legislatures, the courts, other associations, and private businesses to advance an equitable environment for commercial drivers.

Trucking Associations

Directory of trucking associations. Gateway to a very large trucking directory and talk room.

B. Trade Associations




Purpose, Goals, Objectives, etc.

American Trucking Associations

2200 Mill Road
Alexandria, VA.

Lobbies Congress for benefits to the trucking industry. This is the largest trucking organization. Dues are not deductible.

American Moving and Storage Assn.

1611 Duke St.
Alexandria, VA. 22314

Membership consists of 3000 household goods forwarders.

Air Transport Association

1301 Pennsylvania Ave. N.W.
Suite 1100
Washington, D.C.

Trade association of the principal U.S. air lines. Supports and assists members by promoting safety, technology and advocates industry position on issues before Federal, state and local governments.

International Air Transport

Association Route de l' Aeroport 33 P.O. Box 416
1215 Geneva 15 -
Airport SwitzerlandA

Governs and standardizes the industry of airfreight forwarding. Establish maximum standard airfreight rates and set minimum financial standards and reporting requirements.

Intermodal Association of North America

Suite 720
7501 Greenway Drive
Greenbelt, MD.

Organized to benefit members e.g. railroads, intermodal truckers and highway carriers, intermodal- marketing companies, water carriers and stacktrain operators.

Owner/operators Independent Drivers Assn.

1 NW OOIDA Drive
Grain Valley, MO. 64029

Works for the benefit of its members who are mostly independent owner/operators of their own tractors.

C. Other IRS Training Courses/Videotapes


Name of Course

Course Number

Delivery Method

Developer of Course and Procedures to Secure Material

LMSB Trucking Industry Overview



By: Dennis Scobie, Trucking Technical Advisor
Available on the LMSB Technical Advisor web site.

Trucking Industry



Audit Techniques Guide based on a study of audits.

HMT Trucking 5-22-2002


Video and power point slides

Meals, Tires and Equipment Leasing (slides)
Presenters: Robert Adams, Robert Everitt, Robin Herrell.
Formatted to print 3 slides per page, with space for notes (54 pages).
Contact: C&L Office of Communications - Corporate Television

Independent Contractor or Employee

3320-102 (Rev. 10/96)

Self Study

Available on the IRS Home Page

Employment Tax Procedures



Self Study

Classification of van operators within the moving

D. Trade Magazines and Newsletters  



Frequency of Publishing

Summary of Purpose/Information Included/Availability

Air Cargo World


For freight forwarders

American Shipper


For shippers, brokers and forwarders

American Truck
Dealer (ATD)


Keeps ATD members informed of current trucking events and legislation. Many issues with truck manufacturers.

Daily Commerce News


For motor carriers, freight forwarders and custom house brokers.

Global Logistics & Supply Chain Strategies


Best practices and case studies in supply chain strategies, techniques and technology.

Global Trade Talk 


U.S. Customs service journal for the international trade community.

Transportation Equipment news


New equipment and job Advertising. Current fuel prices across the U.S. Articles of interest to trucking companies.

Transport Topics


The National newspaper of the trucking Industry

E. Industry Books


Date of Latest Edition


Summary of Contents


IRS Audit Protection and Survival Guide

Trucking Industry What to do to survive an audit of a trucking company.
By: Baran, Daniel J. and Bernard, Gerald F. New York, John Wiley, C 1997 244 pages


American Trucking Trends

By: American Trucking Association - Statistics Dept
2003 ed. Alexandria, VA. 2003 65 pages

May 1998

U.S. Freight 1998 Economy in Motion

A report by the Department of Transportation on the history and future of transportation logistics, technology and intermodal partnerships.

Nov 1993

Freight Matters

Trucking Industry Guide to Freight and Intermodal Planning under ISTEA,
By: Trucking Research Institute  

Dec. 1995

Characteristics of Urban Freight Systems

Characteristics of modern freight transport systems in large cities.
By:Transportation Center , University of Tennessee, Knoxville


NAFTA TRADE: Past Present and Future

History and future of Nafta trade between U.S., Canada and Mexico.
By: Dean International, Inc. 1996

F. Internal Revenue Manual Citations


IRM Section


Summary of Information Included


Technical Advisor program

Technical Advisor program explained.


Employment Tax Handbook

Instructions for all operating divisions in the examination of employment tax returns.


Excise Tax Handbook

Excise Tax examination procedures.

G. AICPA Auditing Standards and Publications


Date of Issuance


Summary of Information Included


Trucking Companies: Special Tax & Accounting Considerations

By: Nichols Education Corp. 2002 ed. 1011 Sandusky St., Suite G, Perrysburg, OH 43551 125 pages
Federal and State Tax issues in the trucking industry.
Overview of the trucking industry.

H. Market Segment Specialization Program (MSSP-SBSE) 


SBSE /MSSP Coordinator

Jill El-Bendary

Lanham, MD

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Page Last Reviewed or Updated: 05-Mar-2015