Patenting tax-strategies; A mistake which has been costly

According to IRS tax lawyers at the end of May 2011, there were over 140 patented tax-strategies and more than 160 more pending applications relating to patenting tax-strategies. These IRS attorneys note that for years, consumer and tax groups have lobbied to have such patents banned.

The issue, say some IRS tax attorneys, is that by patenting tax-strategies, advisors speaking with clients run the risk of infringing upon a patent. Linda Sherry, a spokeswoman for Consumer Action, maintains that this has led to a situation where “some taxpayers have to pay more to make sure they are following the law without stepping on anyone’s toes.”

David Kappos, Director at the U.S. Patent Office, claims that patenting tax-strategies has been become problematic. After all, Mr. Kappos claims “The problem you get into when you start getting into patenting compliance with laws is that it’s a matter of public policy.” And, Representative Bob Goodlatte (R., VA) says “It is a major abuse of our patent law….The thought that someone could come up with an idea for how to reduce your taxes, and then patent that, and then license it to someone else who wants to use it is outrageous.”

But relief may be on the horizon. IRS attorneys monitoring Congressional lawmakers report that the U.S. House of Representatives is expected to vote later this week on a bill which promises sweeping reforms to the patent system, and specifically prohibits the patenting of tax-strategies. A similar bill has already passed the Senate in a 95 to 5 vote.

However, as with most proposed legislation in Washington these days, IRS attorneys say there is a wrinkle in getting passage of the bill through the House. Specifically, House Republicans are lobbying for the Patent Office to keep its own fees.

In the end, if the proposed legislation becomes law, IRS tax lawyers, accountants, consumer groups and lawmakers all appear to agree that tax-strategies should not be the subject of a patent, and by prohibiting such practices it will eliminate much anxiety amongst tax advisors.


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