The AICPA will continue pushing for legislation in the next Congress either to ban tax strategy patents or provide immunity to taxpayers and practitioners from liability.
Supporters of a tax strategy patents ban took modest encouragement from the U.S. Court of Appeals for the Federal Circuit’s ruling Oct. 30 that a method of hedging risk in commodities trading was not patentable. Like that patent application, tax strategy patents are considered a form of business method patent. But the ruling failed to render all tax strategy patents invalid, said Mark Peterson, AICPA vice president–governmental and public affairs.
In the case In re Bilski, the court held that the hedging method was not eligible for patent protection because it did not pass the “machine-or-transformation test”—it was not “tied to a specific machine” and did not “transform a particular article to a different state or thing.” (Click here for more on the ruling.)
The decision could make some tax strategy patents more vulnerable to legal challenge, but the AICPA, which has promoted a ban on tax strategy patents, will continue to work toward a legislative remedy, Peterson said.
“In order to protect taxpayers and practitioners, we need comprehensive legislation to prohibit the granting of all tax strategy patents,” Peterson said.
The AICPA and other groups and individuals have argued that tax strategy patents can make favorable tax law interpretations off-limits to taxpayers, resulting in inequitable treatment. The patents could also complicate practitioners’ ability to provide tax advice and could mislead taxpayers into erroneously believing that, because it is patented, a tax strategy is approved by the IRS and Treasury, they say.
The Patent Reform Act of 2007, HR 1908, passed the House on Sept. 7, 2007, by a margin of 220–175. Section 10 of the act would have made tax planning methods unpatentable subject matter. It defined a tax planning method as a “plan, strategy, technique, or scheme that is designed to reduce, minimize, or defer” a taxpayer’s tax liability. It would not include the use of tax preparation software or other tools “used solely to perform or model mathematical calculations or prepare tax or information returns.” The provision was one of a number of patent reform measures in the bill. The bill will likely be reintroduced in the new Congress, Peterson said.
On Nov. 15, 2007, the Senate bill, S 2369, a stand-alone version of section 10 of the House bill, was introduced in the Senate. When Congress adjourned this fall, it had been assigned to the Senate Judiciary Committee. Its principal sponsor was Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, with Sen. Chuck Grassley, R-Iowa, the ranking member of that committee, among the bipartisan group of 29 co-sponsors.
“The great support it had as the 110th Congress closed gives us a running start for success in the 111th Congress,” Peterson said.