VSCPA Sends Letter to AICPA Chair Leslie Murphy Regarding Tax Advice PatentsOctober 6, 2006 AICPA Board of Directors Dear Chair Murphy, On behalf of its 8,000 members, the Virginia Society of CPAs (VSCPA) expresses serious concerns about recent hearings held by the U.S. House Ways and Means Committee to investigate the patenting of tax advice. The VSCPA has compiled the following information on the history of tax patents, and offers its own position that patenting tax advice does not represent good public policy. In addition, the VSCPA encourages the AICPA and other state societies to oppose such practices, and offer positions before those committees and governmental bodies that they deem appropriate. Background In general, patents are awarded for processes, machines, manufactures and compositions of matter that are useful, novel and non-obvious. In 1998, a federal Circuit Court decision established that methods of doing business could be patented as long as they involve a "process" or "machine." The patent application process is not publicly disclosed, so the public and tax practitioners cannot challenge the granting of a patent. After patents are granted, they are presumed to be valid unless accused infringers can prove the patent is invalid or unenforceable on numerous grounds. Patent holders are entitled to payment for use of their patented process, as well as injunctive relief, by anyone using the approved process. Historically, the U.S. Patent and Trademark Office has not been required to employ the tax experts that are probably necessary to evaluate the uniqueness of a patent application for tax advice. Public policy issues Taxpayers must comply with applicable federal tax law when filing tax returns. The Internal Revenue Code contains numerous sections that allow the taxpayer to structure transactions in manners that significantly reduce a tax liability. The Internal Revenue Code is a public domain set of laws, available to anyone. By granting tax advice patents, the taxpayer is forced to choose between paying a royalty fee and paying a higher tax bill than required by law. The taxpayer must assume the responsibility of determining whether a tax advice patent exists or he or she will violate patent law and be subject to legal action. However, finding those patents is difficult — sufficient information is not available in the U.S. Patent Office database to determine the exact specifics of a tax advice patent award. The public perception of a patent implies legitimacy to the process under patent. In the case of tax advice patents, the U.S. Patent Office, not the Internal Revenue Service (IRS), issues the patent. The taxpayer does not have any assurances from the patent award process that the tax advice is legitimate and will not be challenged by the IRS, subjecting the taxpayer to additional taxes, plus penalties and interest. Tax practitioner issues Certified public accountants (CPA) who offer tax advice are hired to provide tax advice for their clients' particular tax situation. The relationship is subject to ethical standards of the CPA profession, which include client confidentiality. Due to those confidentiality standards, CPAs may find themselves in an indefensible position when challenged by a patent holder. AICPA Statements on Standards for Tax Services, TS Sections 9100.47 and .48 require the CPA to perform certain processes when rendering tax planning advice or evaluating someone's tax planning transaction. Both processes include the application of pertinent authorities, including the Internal Revenue Code, and the drawing of a conclusion based on those authorities. A tax patent could potentially prevent CPAs from adhering to these standards, particularly in a situation where the patent holder obtains an injunction against the practitioner. The VSCPA's position The patenting of tax advice forces a choice between paying more in taxes than required or paying a patent royalty payment. We do not believe this represents good public policy. The inability of CPAs to defend against a patent infringement suit due to client confidentiality standards places CPAs in a position of potential exploitation by patent holders or in conflict with their professional duty to a client. Allowing patents for tax advice is the same as allowing patents on criminal legal advice. Both are based on laws that are public domain. We do not believe that patents on tax advice are any more supportable than a patent on the process of defending against a criminal charge. If you have any questions, please contact VSCPA Government Affairs Director Erin Collins at ecollins@vscpa.com or (800) 733-8272. Thank you for your attention to this important matter that could have a huge impact on the CPA profession. Sincerely,
Bradley M. Roof, CPA, Ph.D., CMA Cc: State Society Executive Directors LAST UPDATED 10/6/2006
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