If someone said to me a decade ago that the ideas that tax planners use, some on a daily basis, might be violating a patent, I would have dismissed it as crazy talk.

Of course, nobody told me this because virtually no one knew about it. Yet ever since the 1998 Federal Circuit decision in State Street Bank & Trust, more than 80 patents have been issued for tax patents and 133 are now pending before the United States Patent Office.

Some of the patents are for relatively simple ideas, such as the SOGRAT patent, which involves a grantor-retained annuity trust, or GRAT, funded with nonqualified stock options. Since GRATs are permitted by the Tax Code, it’s a surprise to find a patent granted for a variation of such a common technique.

As AICPA president Barry Melancon said, the problem is growing because the patents “do not pertain to just esoteric portions of the Tax Code affecting a handful of taxpayers; the patents cover a broad range of areas, including estate and gift tax, pension plans, tax-deferred exchanges and deferred compensation, that affect millions of taxpayers.”

To its credit, the AICPA has been at the forefront of the movement against the patenting of tax strategies. And legislation introduced in the last Congress by representatives Rick Boucher, D-Va., and Bob Goodlatte, R-Va., would have prohibited such patents. Both Boucher and Goodlatte are senior members of the House Judiciary committee, which has jurisdiction over patent legislation.

“The bill passed the House with more than 40 sponsors,” said Mat Young, director of congressional and political affairs at the AICPA. “But the Senate never passed comprehensive patent reform, and both bills expired.”

The bills have been reintroduced in the current Congress, based on language that passed the House last year, according to Young.

“But what changes the dynamic is the fact that the Senate will act first this year, and the Senate bill does not yet contain the ban in its comprehensive reform bill,” he said. “At the staff level, House Judiciary and the Senate Judiciary staffs are both considering and negotiating the content of what will be in the bill, with the expectation that the big issues will be worked out preconference. So from a strategy standpoint, it’s important that our language get into the Senate bill now.”

To that end, the AICPA, together with the American Association of Attorney CPAs and 15 other consumer organizations, taxpayer rights groups and financial planners, sent a letter on October 20 to congressional leaders in support of a ban on patents.

“We’ve been lobbying against tax strategy patents for over three years,” said Young. “This is the first time a large coalition is weighing in on the subject.”

The letter notes that the problems associated with tax strategy patents are multiple and complex. “First, we believe that they may limit the ability of taxpayers to utilize fully interpretations of tax law intended by Congress,” it stated. "Barriers to compliance caused by these patents may also cause some taxpayers to pay more tax than others similarly situated. This is simply unfair.”

Moreover, the letter added, tax strategy patents complicate the provision of tax advice by professionals and create a new burdensome level of compliance and cost, ultimately borne by taxpayers. And, it observed, the issuance of a patent is no guarantee that the strategy will work.

“A government patent doesn’t mean it is a valid strategy,” said Young. “The PTO [Patent and Trademark Office] makes the decision on what is patentable, not on tax policy.”

As to whether or not it’s a good strategy for a particular individual, the decision is yours to make, not the PTO’s. And that’s good.


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