President Signs Patent Reform Bill Banning New Tax Strategy Patents


On Friday morning, President Barack Obama signed into law the Leahy-Smith America Invents Act (HR 1249), which reforms the U.S. patent system and stops the granting of patents for tax strategies. The bill had been passed by the Senate earlier this month and by the House of Representatives in June.

 

Under the act, any “strategy for reducing, avoiding, or deferring tax liability” is deemed to be “prior art” under patent law, and therefore not patentable. The tax strategy provision applies to “any patent application that is pending on, or filed on or after” Sept. 16, 2011.

 

The act defines “tax liability” as any liability for tax under federal, state, local or foreign law. The provision covers taxes imposed by any “statute, rule, regulation, or ordinance that levies, imposes, or assesses such tax liability.” It does not, however, apply to tax preparation and other software, explicitly excluding any “method, apparatus, technology, computer program product, or system, that is used solely for preparing a tax or information return or other tax filing” or that is “used solely for financial management, to the extent that it is severable from any tax strategy or does not limit the use of any tax strategy by any taxpayer or tax advisor.”

 

Tax strategies became patentable, as business methods, under a 1998 court decision (State St. Bank & Trust v. Signature Fin. Group, 149 F.3d 1368 (Fed. Cir. 1998)). Since then, the U.S. Patent and Trademark Office has granted more than 160 patents on tax strategies, covering a wide range of activities including real estate transactions, charitable giving, retirement planning and the granting of stock options. Another 167 applications were pending when the act was signed into law. Existing tax strategy patents are not affected by the act, but tax strategies in pending patent applications will be deemed prior art under the new law.

 

AICPA President and CEO Barry Melancon welcomed Friday’s enactment, saying in a prepared statement, “Tax strategy patents are the equivalent of private tollbooths that block tax compliance options and could cost Americans more money. We are grateful that Congress and the president recognized this and acted to correct the inequity.”

 

The AICPA and state CPA societies have been advocating for legislation to address tax strategy patents for the past five years, raising concerns in a series of letters to Congress and the IRS during that time.

 

More from the JofA:

 

 Find us on Facebook  |   Follow us on Twitter  |   View JofA videos

SPONSORED REPORT

Get the career toolkit

Download this sponsored report for four must-read articles showcasing tips and best practices for employers and employees.

DOWNLOAD

Filing season quick guide — Tax year 2014

Tax season started Jan. 20. Download our “quick guide,” a printable card that contains dollar thresholds, tax tables, standard amounts, credits, and deductions to keep at your fingertips during tax season.

TAX NEWS

Expired tax provisions extended for 2014

President Barack Obama signed legislation that retroactively extended more than 50 expired tax provisions for 2014, allowing taxpayers to take advantage of a host of tax incentives during this filing season.