A coalition of various organizations, including the AICPA, has written to members of Congress to ask for a ban on the patenting of tax strategies. The letter says tax strategy patents “pose a significant threat to taxpayers and their advisers,” and urges Congress to prohibit them.
In the past few years, the U.S. Patent and Trademark Office has been issuing patents for tax strategies, including some for strategies that were previously described in IRS rulings. These patents have generated much attention and controversy (see “Patenting Tax Ideas,” The Tax Adviser, Aug. 07, page 456.)
The coalition lists several problems associated with patents on tax strategies:
- They may limit taxpayers’ ability to take full advantage of the tax law.
- They may cause some taxpayers to pay more in taxes or to pay more than similarly situated taxpayers.
- They create a burden on tax advisers.
- They may mislead taxpayers into believing that a patented strategy is valid under the tax Code when the granting of a patent does not guarantee the validity of the strategy.
The letter also addresses the Bilski case, which is currently pending before the Supreme Court. In Bilski, 545 F.3d 943 (Fed. Cir. 2008), the U.S. Court of Appeals for the Federal Circuit curtailed business method patents by holding that only a business method that is tied to a particular machine or apparatus or that “transforms a particular article into a different state or thing” is eligible for patent protection.
While tax strategy patents are a type of business method patent, the coalition does not believe that the Bilski decision will stop the issuance of tax patents—they write that 82 tax strategy patents have been issued and 133 are pending. The letter says, “A legislative solution remains absolutely necessary.”
The letter writers say they “want to see Congress resolve this problem once and for all,” and the coalition endorses HR 2584, which would ban patents on tax planning methods. The bill broadly defines a “tax planning method” as “a plan, strategy, technique, or scheme that is designed to reduce, minimize, or defer, or has, when implemented, the effect of reducing, minimizing, or deferring, a taxpayer’s tax liability, but does 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.”
HR 2584 has been referred to the House Judiciary Committee. The letter urges enactment of the bill.