Q: One of our clients had the following feedback from a carrier when he submitted his Over, Short or Damage claim.
The carrier expressed a concern of only the claim rep’s name being captured on the claim form. It claimed carriers have stated they would not accept a claim unless it was signed by the “owner of the goods.”
The client mentioned something about the legalities of this requirement. Any thoughts?
A: Well, of course the owner of the (lost or damaged) goods is the only party with any right to collect on the claim.
The law is a little unsettled about the validity of claims filed by other parties. The generally accepted view appears to be that anybody can properly file; see, for example, Dillon v. Goldstein Refrigerator Line, 268 P.2d 699; Franck v. Ry. Exp. Agency, 112 N.E.2d 381; Delaware L. & W. Ry. Co. v. U.S., 123 F.Supp. 579 (1954); Beltrami Co-Op Creamery Assn. v. American Ry. Exp. Co., 199 N.W. 568; and Portman Curson v. The Hartford Fire Ins. Co., 410 N.Y.S.2d 595.
In a few other cases, though, courts have held that only the party entitled to recover may file the claim; see Appalachian Electric Power Co. v. Virginia Ry. Co. 29 S.E.2d 471; and cf. Delphi Frosted Food Corp. v. I. C. R. R. Co., 188 F.2d 343 (U.S.C.A.5, 1951), cert. den. 342 U.S. 833.
So, although I don’t agree with the view stated by your client’s carrier, I can’t say it’s definitively wrong — unless, of course, the claim’s been “assigned” to someone other than the owner. In that case, the assignee should provide proof of the assignment, because he’ll have to do that anyway when it comes time to collect.
Freight Bills’ Tax Factor
Q: One of our carriers factors its freight bills. Who should get the IRS 1099-MISC information return, the carrier that performed the services or the factoring company that received the payment? I keep getting conflicting answers on this question.
A: Actually, neither. As I’ve written before, under Treasury regulation 1.6041-3(c), 1099s need not be issued in connection with payments made for, among other things, “freight” — that is, transportation services.
I confirmed my reading of this regulation in a phone call to the IRS, in which I learned several things.
One of them is that we’re no longer “taxpayers” to the IRS; we’re “customers” — as in the recorded “all our representatives are busy helping other customers,” while you wait interminably on the phone listening to one of the more obnoxious pieces of music I’ve heard in a long time.
Once I finally got through to an actual human being, though, she was knowledgeable and helpful. A lot of my readers questioned my prior response about 1099s not needing to be sent to carriers (and brokers, forwarders, etc.), but the words were barely out of my mouth before she was citing the same regulation I did.
Then we got into the factoring question you asked, to which she was equally firm. Provided you need to make out a 1099 — as you don’t for carrier services — you send it to the party that provided the service, not the factor.
I can certainly understand how you got conflicting information on this. I did, too, when I researched it on the Internet. One site that lets users respond to other users had two responses to that question as presented by a user, one each way.
Unfortunately, I can’t give you chapter and verse from the Treasury regulations. The woman I spoke with offered one — Section 1.6041-1(e) — but when I reviewed it after hanging up, it seems to deal with payments you make on behalf of somebody else, rather than payments you make to another person who’s collecting on behalf of someone else. And I wasn’t about to call back and spend another half hour listening to that dreadful tune again.
Still, I think her advice was correct. So if you’re dealing with a factored bill from somebody to whom you do owe a 1099 (and, again, you don’t to a transportation provider), send the form to the principal, not the mere agent (the factor) to whom you actually sent your payment.
Of course, as is well-known, the IRS doesn’t stand by the responses given by its telephone corps. Even so, it’s nice to get good “customer” service from somebody once in a while.
Consultant, author and educator Colin Barrett is president of Barrett Transportation Consultants. Send your questions to him at 5201 Whippoorwill Lane, Johns Island, S.C. 29455; phone, 843-559-1277; e-mail, BarrettTrn@aol.com. Contact him to order the most recent 351-page compiled edition of past Q&A columns, published in 2010.