IRS Notifications and Rulings that Target Small Businesses

If your business receives a Notification of Possible Income Underreporting from the IRS, you are not alone. The IRS has sent out about 20,000 of these letters, which imply that the taxpayers underreported cash receipts.

Not an Audit

Are You Properly Classifying Workers? Another IRS hot button is the proper classification of workers. Millions of workers are misclassified as independent contractors, costing millions of dollars in lost revenue every year, according to the Treasury Inspector General for Tax Administration (TIGTA). When businesses pay independent contractors, they don't pay or withhold employment or income taxes. The use of independent contractors also saves companies the cost of providing pensions, perks and healthcare benefits, which are expected to rise under the healthcare reform law. Classification errors can even affect insurance and unemployment coverage. Workers (and employers) can request a determination ruling from the IRS. So workers your company hires could go to the IRS and ask for a ruling without your knowledge. Perhaps not surprisingly, most of these rulings reclassify workers as employees. A recent TIGTA report analyzed 5,325 IRS determination rulings that reclassified workers as independent contractors. The report states that only 17 percent of the employers involved properly classified workers as employees going forward. The rest failed to fully comply with the IRS rulings. Businesses that improperly classify workers could find themselves in hot water with the IRS, Department of Labor, insurance and pension providers, and state taxing authorities. But now might be a good time to come clean. The IRS continues to offer a Voluntary Compliance Settlement Program (VCSP) that lowers the costs and penalties of reclassifying independent contractors as employees. For more information about the proper classification of workers or whether you should apply for the VCSP, contact your tax and payroll advisers.

IRS officials say these letters do not constitute an audit. The tax agency is merely asking taxpayers to review the accuracy of their tax returns and, in many cases, provide additional documentation.

The letters are the result of a relatively new requirement that provides the IRS with more information about the debit and credit card transactions made by merchants. The IRS then compares the data with what businesses report on their tax returns. If there is a large disparity in the numbers, the IRS wants the taxpayers to explain.

Angry Representative

One member of Congress, Rep. Sam Graves (R-MO), sees these notifications as a burden on small business owners. In a letter to the IRS Commissioner of the Small Business and Self-Employed Division, Graves wrote:

"The initial sentence of the notification…gives the impression that the IRS is looking for more than just additional information. To the contrary, the letter implies that this is a serious matter that could lead to assessments of additional tax, penalties and interest…A small business owner who receives one of these notices is very likely to feel alarmed or threatened."

Stay tuned: Graves' letter asks the IRS to explain how it plans to modify these notification letters by September 3.

Simple Trigger

What triggers these notification letters sent to businesses? The IRS compares the gross receipts reported on a tax return to the sum of all the Form 1099-Ks that banks, credit card companies and other payment settlement agencies (such as PayPal) file on behalf of businesses.

In other words, if your business accepts debit or credit cards (and who doesn't these days?), the entity that processes the transactions reports the amount of the transactions to the IRS.

However, these days, card transactions on a 1099-K filing will never match a merchant's income. For example, they don't reflect sales tax, the "cash back" requested by customers, chargebacks, refunds and other factors.

IRS Benchmarks

The IRS has undisclosed benchmarks for the percentage of gross receipts that should come from credit cards and other Form 1099-K reportable transactions for each industry (or merchant code). The IRS compares a percentage from a business to what the average company under the same 1099-K merchant code reports. If your percentage is above this benchmark, it raises a red flag -- and the IRS suspects you of underreporting receipts from payments by cash or checks.

Throughout the notification process, taxpayers are never told what the average credit card-to-gross receipts ratio should be -- or how far off their ratios are from this average. This ambiguity frustrates many taxpayers.

Here's a simple example. Let's say your company's credit card processor tells the IRS that you made $700,000 in card transactions last year. On your tax return, you reported gross receipts of $750,000. The average ratio of credit/debit card receipts / gross receipts for companies in your industry (based on your merchant code) is 7:10, which means that the IRS expects 70 percent of your gross receipts to come from credit/debit cards. So it expects you to report $1 million of gross receipts if you receive $700,000 on 1099-Ks. If you only claim $750,000 of gross receipts, the IRS thinks you're underreporting cash transactions by $250,000 and may ask you to explain the difference.

Four Threatening Letters

There are four types of notification letters you might receive: IRS Letters 5035, 5036, 5039 and 5043. The least worrisome is a Letter 5035. If you receive one of these "soft notices," consider yourself lucky. No direct response is required. The IRS merely advises you to review the accuracy of your tax return. However, it's a good idea to compile and retain supporting documents just to be safe.

The other three letters are more serious and require a response within 30 days. After a response, business owners cross their fingers and wait. The IRS will contact them if it needs additional information.

Letter 5039 requires taxpayers to complete an IRS form verifying reported income, which generally takes several hours. It asks the taxpayer to verify the amount claimed on each 1099-K. Then, it asks for a list of gross receipts from sources that might cause the taxpayer to report an unusually high percentage of credit card receipts, such as:

• Online, phone or catalog sales,
• Gift cards sales, and
• Lottery ticket sales.

One IRS form also asks taxpayers to list 1099-K reportable transactions that should have been reported by other entities that share its credit card terminal.

The Tax Gap

So, why is the IRS bothering with all the red tape? The IRS explains that:

Third-party information reporting has been shown to increase voluntary tax compliance, improve collections and assessments within IRS, and thereby reduce the tax gap.

The "tax gap" is the difference between the amount of tax money owed and the amount collected. The IRS began requiring 1099-Ks in calendar year 2011 as a reporting requirement of the Housing Assistance Tax Act of 2008. The purpose of 1099-K filings is to create a paper trail so that the IRS can compare merchants' card sales to what is reported on tax returns.

Your Defensive Strategy

If you receive 1099-Ks from banks, credit card companies and other payment settlement entities, ask your accountant how to maintain adequate records in case you have to respond why your gross receipts differ from your 1099-K filings. Proper documentation might require you to adapt your accounting software systems to collect more or different information.

If you receive an IRS notification, call your accountant immediately. Failure to respond within the 30 day window could result in further correspondence, an IRS audit or an assessment.

How to Protect Against Tax Identity Theft

Congress recently gave the IRS failing grades for not adequately preventing, identifying and processing identity theft cases involving tax returns. One member of Congress called tax identity theft "an epidemic that is profoundly unacceptable." Another joked that if bank robber Willie Sutton were alive today, he'd target the IRS.

In the past couple of years, the IRS has announced that it is cracking down on the problem. Yet the number of tax identity theft cases rose to 1.9 million through June 29, 2013, up from 1 million in 2011, according to the Treasury Inspector General for Tax Administration.

The Business Side: Complying with ID Theft Laws Identity thieves don't just steal from the government. Businesses lose billions to these fraud schemes every year. A company can be legally obligated to identify, mitigate and prevent identity theft under federal and state identity theft laws. Failure to comply with these laws could make a business civilly liable for damages suffered by its customers. Who is a Creditor? The federal "Red Flags Rule," administered by the Federal Trade Commission (FTC), applies to banks and other businesses involved in extending credit. A "creditor" is any individual or organization that obtains and uses credit reports, furnishes information to consumer reporting agencies, and advances funds to consumers based on an obligation to repay them, according to the latest rendition of the FTC rule effective February 2013. The law covers any credit account for personal, family or household purposes that permits multiple payments or transactions. It also covers any account for which there is a "reasonably foreseeable" risk of identity theft, including commercial accounts. Examples of businesses that might be required to comply with the Red Flags Rule include retailers and leasing companies. How to Comply If the FTC rule applies to your business, implement a written program with four features: 1. Identification. Customize a list of red flags specific to your business. The FTC lists 26 possible red flags, including unusual account activity, fraud alerts or credit freezes on consumer reports, and inconsistent personal information compared to credit reports or what your company has on file. 2. Detection. Implement procedures to detect these red flags. A large company with millions of customers or one that handles high dollar transactions may need a more robust program than a small firm. 3. Response. After you red flag an account, respond promptly and effectively to mitigate and prevent identity theft. For example, if you receive a Notice of Address Discrepancy from a credit reporting agency, immediately request additional documentation to confirm the customer's address or refuse to extend credit. 4. Revision. Your written program should not be static. Revise it periodically for the latest identity theft scams and detection methods. In addition to the federal rule, many states have their own identity theft and privacy laws. If your business extends credit to out-of-state customers, check with your attorney to determine whether you must legally comply with the laws in the customers' states. How Can Businesses Combat Identity Theft? Here are some tips for minimizing the risks of leaking sensitive personal information: Limit usage. Only obtain private information when it's absolutely necessary and never use it as part of your account numbers. This applies to Social Security numbers, birth dates and credit card numbers. Protect paper records. Store personal information about customers and employees in locked file cabinets and limit the number of employees who have access to the records. Be aware that many ID theft schemes are operated by employees who have access to personal information and sell it -- or work with criminals outside the organization for a cut of the proceeds. Secure technology. Use passwords, firewalls, antivirus software, spyware protection and encryption to protect sensitive data from hackers. Install updates as soon as they're available to fix potential security risks. Purge old information. Set policies for how long to retain customer data. Cross-cut shred old paper files and render old computer hard drives unreadable by disk shredding, magnetically cleaning disks or using software to wipe them clean. For years, identity theft has been the FTC's top complaint. Regardless of whether the Red Flags Rule or state identity theft laws apply to you, it's smart business for everycompany to protect itself and its customers from identity fraud.

Typical Tax Scams

IRS Principal Deputy Commissioner Michael R. McKenney testified before Congress that tax identity theft cost $4.2 billion during the 2013 tax season.

Identity thieves typically use two tax fraud scams:

Refund fraud. The thief files a fraudulent tax return, reporting fictitious wages and withholdings, usually early in the year before companies are required to issue 1099s and W-2s. The thief pockets the refund, which is typically issued electronically or with a debit card to avoid the hassle and suspicion of depositing a paper refund check at the bank. When the real taxpayer files a legitimate tax return later in the tax season, the IRS rejects the duplicate filing under his or her Social Security number.

Employment-related fraud. The thief gets a job using stolen personal data and collects earnings without withholding all requisite income taxes. When the company files a 1099 or W-2 under the stolen Social Security number, the taxpayer gets a bill for unreported earnings tied to his or her Social Security number.

Resolving a tax identity fraud claim can take a year or longer. National Taxpayer Advocate Nina Olson testified that the beefed-up ID theft efforts taken by the IRS have done little to assist fraud victims. Olson saw a 66 percent increase in identity theft cases from 2012 to 2013. She expects the trend to continue into the 2014 tax season.

IRS Prevention and Detection Efforts

McKenney defended his agency's identity theft strategy before Congress. He testified that the IRS is currently conducting 1,100 criminal investigations that that led to 785 indictments through June. But he estimates that it would cost roughly $22 million to screen all the suspicious tax returns identified by an IRS protection program -- at a time when the agency is operating with financial challenges. The IRS budget has been cut by $1 billion since 2010, including $618 million this year from the sequester.

Insight from a Florida Pilot Program

As part of its anti-fraud efforts, the IRS is initiating a pilot program with state law enforcement officials in Florida, where tax ID theft cases are especially high. One preliminary finding from the Florida crackdown is that number of tax fraud cases is down but the average amount stolen per fraudster is reportedly up.

Some of the bigger players in Florida are downright brazen. Law enforcement officials point to the self-professed "queen of IRS tax fraud," Rashia Wilson, who posted pictures of herself on Facebook holding wads of cash and boasting:

"IM A MILLIONAIRE FOR THE RECORD SO IF U THINK INDICTING ME WILL BE EASY IT WON'T I PROMISE U."

Wilson was subsequently indicted along with her boyfriend for filing more than 220 fraudulent returns and claiming $1.9 million in federal tax refunds between 2009 and 2013. At the same time, Wilson reported no federal employment income and collected $668 a month in food assistance from Florida. She began serving a 21-year prison sentence in July.

While her fraud spree lasted, claiming fraudulent tax credits -- including the earned income and education credits -- were also some of Wilson's favorite schemes. These credits reduce taxable income and can generate a refund. For example, if a low-income individual qualifies for a $2,000 earned income credit but has only $700 of taxable income, he or she would be eligible for a $1,300 tax refund. Supporting documentation is not attached to a tax return in order to claim the education tax credit.

Wilson's home state, Florida, has historically had the highest per capita rate of reported identity theft complaints, followed by Georgia and California. Some speculate that Florida's pilot program might cause local thieves to relocate to other states -- or at least have their fraudulent refunds rerouted to banks across state lines.

Personal Protection Measures

No matter where you live, identity theft can be costly and frustrating if you are a victim. It starts when someone steals your personal information, including:

• Name and address,
• Telephone number,
• Social Security number (SSN),
• Bank or credit card account number,
• Birth date, and
• Biometric data, such as eye color, height and weight.

This information may be stolen from tax records, medical and death documents, loan applications or your employer's payroll files. Some information, such as birthdays, can be found on social media websites.

Fortunately, you can take these steps to help prevent your personal information from getting into the wrong hands:

Don't carry your Social Security card or documents with your Social Security number.
Don't give out your Social Security number to businesses or medical providers just because they ask for it. Give it only when required.
Protect your financial information. Shred documents with personal identifying information. Don't provide information in response to e-mail or text messages. Don't give personal information over the phone unless you have initiated the contact or you are sure you know who you are dealing with. Secure personal information in your home.
Watch what you put on social media. Some people put personal information on social media websites and elsewhere on the Internet, such as their birthdays, addresses, phone numbers, marital status, etc. Identity thieves can use that information to try and compile more information about you so be careful what you disclose.
Change social media accounts to "friends only" or similar settings to prevent information from being accessed by anyone.
Check your credit report every 12 months.
Protect personal computers by using firewalls, anti-spam/virus software, update security patches, and change passwords for Internet accounts.
File as early as possible in the tax filing season.
Respond immediately if you receive a notice from IRS. If you believe someone may have used your Social Security number fraudulently, notify the IRS by responding to the name and number printed on the notice or letter. You need to fill out the IRS Form 14039, Identity Theft Affidavit.
If you are a victim, get an Identification Number from the IRS that proves you are the legitimate filer of future tax returns. The IRS issues Identity Protection Personal Identification Number (IP PIN) to select identity theft victims whose identities have been validated by the IRS. It allows legitimate returns to be processed, and prevents processing of fraudulent returns, thereby mitigating processing delays in victims' federal tax return processing. Generally, the IP PIN is mailed out once the taxpayer's account has been resolved. Current programming allows one IP PIN to be generated each year.

Valuation Is Key as the M&A Market Slowly Heats Up

After a lackluster 2012, domestic M&A activity is on the rise. Small business deal volume was up 62 percent in the second quarter of 2013 compared to the same period for 2012, according to the latest BizBuySell.com Insight Report, which analyzes private business broker transactions in more than 70 major U.S. markets. This is the largest year-over-year jump since the M&A bubble burst in 2008 and the second straight quarter of improvement.

Tips for Operating a Sale-Ready Business Not all business exits are planned. Business owners never know when a competitor or partner will make an offer that's too good to refuse -- or when an unexpected event will strike and they (or their heirs) are forced to sell. So, a business should always be run like it's up for sale. Lean and Clean This means operating as lean as possible, reinvesting in fixed assets, and abstaining from mingling personal and business assets. Buyers are leery when sellers ask them to adjust year-end financial statements for quasi-business expenses (such as country club dues or personal travel expenses), unrecorded cash sales or related party transactions. In other words, keep the income statement as clean as possible. It's also smart to purge any nonessential balance sheet items, such as idle or non-operating assets, obsolete inventory, bad debts, noncore business lines and shareholder notes. Buyers prefer financial information that is audited or reviewed by a CPA firm. Low Risk, High Value Owners who minimize risk reap a higher return. Future earnings appear more secure if the company is current on all leases, licenses, and contracts, including employment and non-compete agreements that have been signed by all employees. Note: Laws regarding non-compete agreements vary from state to state. For example, courts in California generally reject non-competes because state law makes them unenforceable except in limited circumstances. Because non-compete agreements aren't generally allowed, California employers often use confidentiality and other agreements to protect trade secrets and other information. Owners can further lower risk by reviewing insurance policies on a regular basis to ensure they've purchased the right types of policies and coverage amounts. Due Diligence Recordkeeping The documents required in today's M&A environment can be extensive. If your recordkeeping has been shoddy, it can be difficult or impossible to compile the information wanted by a potential buyer or partner. Owners should start preparing the documentation needed for the due diligence process long before a sale. Above all, operating sale-ready means understanding what the business is worth today and identifying key value drivers. By playing up what matters most to buyers, the business will be more attractive to prospective investors and fetch a higher price in the marketplace.

Even better news for private small business owners is that pricing multiples seem to be slowly rising. It's been a buyers' market since the start of 2011. But BizBuySell.com reports pricing multiples have risen in the first two quarters of 2013. The average multiple of cash flow reached 2.23 in the second quarter of 2013.
Possible reasons for a more robust M&A market include:

• Economic recovery;
• Pent up supply and demand from the recession;
• An aging business owner demographic;
• Historically low interest rates; and
• Improved small business financials.

Beware of Do-It-Yourself Values
Many business owners are uncertain -- or unrealistic -- about what their businesses are currently worth. Relying on gut instinct or industry rules of thumb to set an asking price can be perilous, however. Quick-and-dirty pricing formulas can be outdated, ambiguous or fail to take into account the unique characteristics of a specific business.
For example, an owner might hear a rumor while attending a tradeshow that similar businesses have sold for roughly five times earnings. The formula may provide an interesting starting point or sanity check for a formal appraisal. But it could under- or overstate the eventual selling price for several reasons.

1. The term "earnings" could refer to net income, net operating cash flow, pre-tax earnings, EBITDA (earnings before interest, taxes, depreciation and amortization) or net free cashflow.

2. The formula also fails to specify what assets and liabilities are included in selling price, as well as the presumed sales terms.

3. Rules of thumb fail to take into account the specific company's financial performance, which could be above or below industry averages.

Put simply, you need to research the details of real-life comparable sales transactions, rather than trust generic industry folklore.

Use a More Scientific Approach
More objective, transaction-based methods of estimating your business's fair market value include:

The cost approach. The balance sheet is a logical starting point for estimating value. But many items might be stated at historic cost and need to be adjusted to market value. Other items -- such as internally-generated intangible assets and contingent liabilities -- may not appear on the balance sheet and need to be added.

The market approach. Actual sales of comparable businesses within a meaningful timeframe provide objective insight into what a business is worth, ifcomparables are available. Private businesses are not required to publish transaction details, but you can access proprietary private transaction databases for a fee or subscription. Larger private companies also consider prices of comparable public stocks when estimating value.

The income approach. A company's historic financial performance only provides valuation insight to the extent that it predicts future performance. The income approach derives value from a company's expected risk and return. Return is typically measured by future cash flow. Risk is measured by discount or capitalization rates. Companies with higher returns and lower risk usually sell for more.

Applying these valuation approaches is beyond the scope of most in-house accounting personnel. An outside financial professional with business valuation experience can help adjust balance sheets, research comparables and discount future earnings to estimate the fair market value of a private business.

Establish a Reasonable Asking Price
Fair market value measures how much the "universe" of well-informed buyers and sellers would agree to pay for a business without being under duress to buy or sell. It's a good benchmark for how much a business is worth overall. But there may be strategic buyers willing to pay more than fair market value. If so, consider adding a premium to fair market value when setting the asking price.

Examples of strategic buyers might include competitors, suppliers, customers and large conglomerates who are rolling up smaller players in an industry. When adding a premium for strategic buyers, be aware that setting the asking price too high may result in scaring away prospective suitors.

Consider Taxes to Structure the Optimal Deal
Equally important to negotiating the selling price is negotiating the terms. The tax consequences of an acquisition can vary widely depending on factors including how long you've owned the business, the type of entity (C corporation, S corporation, LLC, etc.) and exactly how the deal is structured. Taxes can dramatically affect how much cash the owner walks away with after closing.

For example, a deal could be set up as an asset sale in which the seller cherry picks the most desirable assets and liabilities. Or it might make more sense to set up a stock sale, which includes everything on the balance sheet. Stock sales allow the business to continue "as-is" without negotiating new licenses or contracts.

In general, sellers prefer stock sales from a tax and liability perspective. Buyers like asset sales because assets are adjusted to market value, which provides a fresh basis for depreciation and lowers future taxable income.

When an S corporation sells, the parties may be eligible for IRC Section 338, which treats stock sales like asset sales for federal tax purposes. Although the election won't save sellers any tax, buyers reap the previously described tax benefits of an asset sale.

By planning ahead with your tax adviser, you may be able to substantially reduce the tax bill. Don't forget to assess state and local tax issues.

More Factors to Consider
Other negotiating tools include non-compete agreements, which prevent parties from competing for a prescribed time period within a geographic region, and employment contracts, which help transition the company to the new owners.

Some sellers also accept installment payments or earnouts, wherein a portion of the selling price is withheld and contingent on future performance.

Cross-Border and Sector M&A
While the report described above shows an increase in domestic M&A deals involving small businesses this year, international transactions are not faring as well. According to the latest Thomson Reuters Investment Banking Scorecard, cross-border M&A deal volumes are down by almost a third so far this year from 2012 levels. The Scorecard shows United States M&A activity up 29 percent in 2013 over last year.

In addition to geography, certain industries are having a better year than others. For example, the Investment Banking Scorecard reports that M&A is up in the healthcare and telecommunications sectors (43 and 44 percent respectively) but down in the financial and high technology sectors (-23 and -13 percent respectively). The BizBuySell.com Insight Reportshows that 38 percent of transactions closed in the second quarter of 2013 were service businesses while only 4 percent were in the manufacturing sector.

Get Professional Help for Optimum Results

Business owners contemplating a sale should meet with their CPAs and attorneys. These professionals have experience closing deals and can assist with business and asset appraisals, brokers and commercial lenders to help with financing issues. A team of experienced financial professionals can help owners reap the most from their private business interests.

Court Rules Service that Skips TV Ads Can Continue

A federal appeals court upheld a lower court's refusal to temporarily halt sales of Dish Network's Hopper service and a related product, which eliminate commercials before consumers watch recorded television shows. The decision is a victory for ad-skipping services and could have implications for traditional television advertising in the future. Possible Implications of the Appeals Court Ruling Other manufacturers could develop ad-blocking devices because they view theFox case as protection from copyright liability. The traditional model of free TV with one-size-fits-all advertising could change. For example, Dish Network has stated that instead of eliminating commercials entirely, technology could target ads to individual viewers based on their demographics and viewing habits. If ad-skipping technology becomes common, broadcasters could charge cable companies and distributors more to air their content -- and the costs could be passed onto consumers. If viewership and ad revenues decrease further, networks may not be able to produce as many shows. Quirky Commercials from the Company that Eliminates Them Ironically, the company with products that skip over commercials has some memorable commercials of its own. Dish Network's Hopper commercials feature multi-generational members of a family with thick Boston accents shouting about "the Hoppah." Here are a few examples: Gathered around the TV in the living room, one of the "Boston Guys" explains that they can now record multiple shows at one time. "Congratulations," Grandpa yells. "Now you can start cooking, cleaning, leaving and jogging." One man asks: "I really don't have to leave, do I?" and another responds: "I'm certainly not jogging." In one 30-second spot, the men are lined up on the couch after a funeral. The screen flashes "In Memoriam - Commercials 1941-2012." Another commercial shows family members watching their shows on wireless devices around the house. Wherever they sit turns into a recliner, including a kitchen counter, the stairs and a toilet. Facts of the case: Fox Broadcasting Company and affiliated companies owns the copyright to shows that air on its network. Fox contracts with cable and satellite television service providers that sell its programs, offer them via video on demand or stream them over the internet. Fox's primetime lineup includes Glee, Bones, The Simpsons, Family Guy and other shows. One distributor that Fox contracts with is Dish Network, the third-largest pay television service provider in the United States. In March 2012, Dish released the Hopper, a set-top box with digital video recorder and video-on-demand capabilities. The Hopper and related products provide service to multiple televisions in a home, as well as to computers and mobile devices. In May 2012, Dish started offering a new feature that allows users to automatically skip commercials. "AutoHop" is only available for certain TV shows, typically on the morning after the broadcast. When users play back a recording with the feature, a pop-up screen appears that allows them to automatically hop over commercial breaks. Once enabled, users don't have to do anything to skip ads. To create the functionality, Dish technicians manually view programs each night and mark the beginning and ending of each commercial in order to skip over it. They do not delete the commercials and viewers can still see them if they choose. Fox sued Dish for copyright infringement and breach of contract and sought a preliminary injunction to stop the Hopper's ad-skipping service. In 2012, a U.S. District Court denied the motion and Fox appealed. On July 24, the U.S. Court of Appeals for the Ninth Circuit ruling stated that to obtain a preliminary injunction, Fox had to demonstrate that: 1. It is likely to succeed on the merits; 2. It is likely to suffer irreparable harm in the absence of preliminary relief; 3. The balance of equities tips in its favor; and 4. An injunction is in the public interest. The appeals court agreed with the lower court that Fox was not entitled to an injunction because it failed to meet the legal tests to obtain one. The court added: "As the district court held, commercial-skipping does not implicate Fox's copyright interest because Fox owns the copyrights to the television programs, not to the ads aired in the commercial breaks." (Fox Broadcasting Co. v. Dish Network LLC, 9th U.S. Circuit Court of Appeals, No. 12-57048) The July 24 ruling is not the end of the story. With the request for a preliminary injunction denied, it means the Hopper can remain on the market. But Fox can move forward with its copyright infringement and breach of contract lawsuit. In addition, Dish faces other lawsuits filed by NBC and CBS and has filed its own lawsuit in federal court against the major television networks seeking a ruling that its commercial-skipping service does not violate copyright. The outcome of the lawsuits could have long-term repercussions for consumers and the television industry, which relies on advertising to sustain its current model. See the right-hand box for some of the possible implications.

Help Your Employees Appreciate Your Investment in Them

"Total compensation statements" have been around for many years and are widely used by large employers. But they have become more accessible to smaller employers thanks to their availability online. The concept is simply to attach a dollar sign, where possible, to all the elements of compensation -- or even the entire "work experience," if you want to take it this far. Doing so may preclude a valued employee from jumping ship for a higher salary, only to realize that he's actually taking a pay cut when factoring in varying employer contributions to health and retirement benefits, among other items.

If the value of salary/wages, commissions and bonuses and basic employee benefits were added up, the benefits portion typically falls between 30 and 40 percent of the total. Add in vacation time, statutory benefits and various programs you may be offering employees, and the total can easily exceed 40 percent.
Pulling together all those numbers can be pain-free if you have a basic human resources information system (HRIS). If not, you may need to do some number-crunching. Once you have those numbers, you can plug them into a customizable template via a web-based service and pay as little as $1 per statement.

Defining Compensation
How expansive should you be? The value of paid time off is certainly an element of compensation that can be easily translated into dollars, and included in the statement. This can include holidays which are above and beyond the basic vacation package.
As noted, some employers also list statutory required benefits including your contribution to employees' Social Security and Medicare benefits and unemployment benefits. While you have no choice in the matter, it's useful for employees to understand this element of your investment in them.
You can also throw in the value of traditional wellness and "financial wellness" benefits, if you offer them. Professional training is yet another important benefit to include, with travel expense reimbursement if the training takes place at a distant location.
A typical statement will feature a grid showing what you contribute to each element of compensation, and what the employee contributes. The employer-paid elements are toted up and identified as total compensation (see chart at bottom). Statements can feature a pie chart to provide a strong visual representation of the relative size of the different components of compensation. These statements can also be used to recap highlights of your benefit programs.

Presenting to Employees
How should this information be presented to employees? Ideally, in a sit-down conversation between the employee and supervisor (or you), to highlight the importance of employees' understanding what you are investing in them, and why.
A good time to do that is in conjunction with an employee review. If, for example, raises were not given out to many employees at that time, or only very modest ones, the benefit statement might reveal the total compensation rose by a greater percentage than the salary or wage component if, for example, your share of the employee's health benefits took a big jump. This would be worth highlighting, of course.
Another approach is to present the statement following the benefits enrollment period, if the effective date of the new benefit elections doesn't coincide with the employee's salary review cycle.
Some employers like to mail statements to married employees' homes, in the hope it will increase the chances the employee will share it with his or her spouse. The assumption is, the spouse will react positively to the numbers. Otherwise, this tactic could backfire. Mailed statements should be accompanied by a letter from you, or have a message from you incorporated into the statement.
The most impersonal statement format, yet perhaps appropriate for some employers -- assuming they have the right information systems in place -- is to have those numbers in the employee's private area of a portal, updated automatically as dollar values change.
A Google search under "total comprehensive statements" will identify several companies which provide the service. You can scan those websites both for price and customizable statement examples.

Acme Corp. Total Compensation    Provided Exclusively for John Smith    Compensation Element   Your Contribution    Acme's Contribution  Salary    $          50,000 Bonus if goals achieved    $            5,000 Health benefits  $          1,800  $            6,000 Health savings account  $            500  $            1,000 Dental plan  $            250  $            4,000 Vision plan  $            300  $            2,500 401(k) deferral  $          7,000   401(k) match    $            3,500 401(k) profit sharing contribution    $            2,000 Paid time off (vacation, sick days, holidays, etc.)*    $            5,000 Life insurance  $            500  $               500 Long-term disability    $               500 Short-term disability    $               600 Educational assistance & training    $            2,000 Wellness program    $               500 Financial education program    $               300 Employee assistance program    $               350 Social Security and Medicare    $            3,812 Workers' compensation    $               175    $        10,350   Non-salary contribution    $          37,737 Non-salary contribution as a percent of total compensation   43% Total compensation    $            87,737       * Based on daily value of salary @ 2,000 hours/year + $200 x 25  -- 15 vacation days, 5 holidays and 5 additional days off. Value would be $7,150 if based on total compensation.