House Passes Bill with Tax Patent Provision, Sends Back to Senate

On June 23, by a vote of 304–117, the House of Representatives passed the America Invents Act (H.R. 1249), which includes a provision intended to stop the granting of patents for tax strategies. The bill would deem any “strategy for reducing, avoiding, or deferring tax liability” to be prior art, and therefore not patentable.

The House approved several amendments to the bill, and because it differs from the version passed by the Senate on March 8, it now must go back to the Senate for reconsideration.

The tax strategy provision, as passed, applies to “any patent application that is pending on, or filed on or after” the date of enactment. Before passing the bill, the House defeated on a voice vote an amendment proposed by Rep. Jared Polis, D-Colo., that would have allowed pending tax patent applications to move forward and possibly be granted patent protection. A coalition including the AICPA sent a letter to the Speaker of the House, House Minority Leader, and chair and ranking member of the House Judiciary Committee on June 21 opposing the Polis amendment. The letter pointed out that the amendment “would allow up to 160+ additional tax strategy patents to be granted,” and that this “could potentially more than double” the number of tax strategy patents in existence.

H.R. 1249 defines “tax liability” broadly to mean liability for tax under federal, state, local and foreign law, and the provision would cover taxes imposed by any “statute, rule, regulation, or ordinance that levies, imposes, or assesses such tax liability.”

The bill excludes from its applicability 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 have been patentable as a type of business method ever since the Federal Circuit Court of Appeals determined that business methods could be patented in 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 approximately 140 patents on tax strategies.

The AICPA has for several years opposed the issuance of patents for tax strategies. In letters to Congress and the IRS, the AICPA has expressed its concerns that allowing tax strategies to be patented:

  • Limits taxpayers’ ability to use fully tax law interpretations intended by Congress;
  • May cause some taxpayers to pay more tax than Congress intended or more than others similarly situated;
  • Complicates the provision of tax advice by professionals;
  • Hinders compliance by taxpayers;
  • Misleads taxpayers into believing that a patented strategy is valid under the tax law; and
  • Precludes tax professionals from challenging the validity of a patented strategy.
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