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AICPA Position on Patents for Tax Strategies

By Eileen Sherr, CPA, MT, AICPA Technical Manager—Taxation, Washington, DC

Please note: This item is from our archives and was published in 2007. It is provided for historical reference. The content may be out of date and links may no longer function.

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The AICPA and its members have extensive experience in rendering advice to taxpayers on tax planning and compliance matters. From this unique vantage point, the AICPA has considered the broad effect of tax-strategy patents on taxpayers, professional tax advisers and the public interest.

 Background

The patentability of tax strategies is a growing concern among tax practitioners and taxpayers. In 1998, the Federal Circuit, in State Street Bank & Trust v. Signature Financial Group, Inc., 149 F3d 1368, held that business methods could be patented. Since then, 51 patents for tax strategies have been granted; as of Feb. 28, 2007, 83 patent applications for tax strategies were pending.

These patents have already been granted in a variety of areas, including the use of financial products, charitable giving, estate and gift tax, pension plans, tax-deferred exchanges and deferred compensation. The AICPA expects many more tax-strategy patents to be issued, directly targeting average taxpayers in a host of areas, including income tax, alternative minimum tax and itemized- deduction maximization. (For more details on this subject, see Hoops, DC Currents, “Tax-Strategy Patents and the Tax Gap,” this issue.)

AICPA’s Position

The AICPA believes that patents granted for tax strategies:

  • Limit taxpayers’ ability to use fully interpretations of tax law intended by Congress;
  • May cause some taxpayers to pay more tax than Congress intended and some to pay more tax than others similarly situated;
  • Complicate the provision of tax advice by professionals;
  • Hinder compliance by taxpayers;
  • Mislead taxpayers into believing that a patented strategy is valid under the tax law; and
  • Preclude tax professionals from challenging the validity of tax-strategy patents.

The AICPA believes that patents for tax strategies undermine the integrity, fairness and administration of the tax system and are contrary to sound public policy. It would like to work with Congress to develop and enact legislation to restrict this type of patent as soon as possible.

Legislative Recommendations

The AICPA encourages the 110th Congress to develop legislation to eliminate the harmful consequences of tax strategy patents, by either (1) restricting the issuance of patents for tax strategies or (2) providing immunity from patent-infringement liability for taxpayers and tax practitioners.

Contact

For more information on this issue, visit http://tax.aicpa.org/Resources/Tax+Patents or contact Eileen Sherr at (202) 434-9256 or esherr@aipca.org.