VSCPA Urges Warner and Webb to Support the Ban of Tax Patents
The Honorable John Warner
225 Russell Senate Office Building
Washington, D.C. 20510
The Honorable Jim Webb
225 Russell Senate Office Building
Washington, D.C. 20510
April 16, 2008
Dear Senators Warner and Webb:
On behalf of the 8,300 members of the Virginia Society of CPAs, I encourage you to co-sponsor SB 2369, a bill by Sens. Max Baucus and Charles Grassley to ban the issuing of tax strategy patents. It is critically important for taxpayers and tax advisors that we solve this problem. Moving this legislation forward is a top priority for the accounting profession this year.
As you know, in 1998 the U.S. Federal Circuit Court of Appeals, in State Street Bank & Trust v. Signature Financial Group, Inc., upheld that business methods could be patented. As a consequence of that decision, 65 patents for tax strategies have been granted and another 110 patent applications for tax planning methods are pending in areas such as the use of financial products, charitable giving, estate and gift tax, tax-deferred exchanges and pension plans.
Perhaps one of the most egregious tax planning patents granted is for the process of computing and disclosing the federal income tax consequences involved in the conversion of an IRA to a Roth IRA. Surely, lawmakers, when creating the Roth IRA, never intended for taxpayers to have to seek permission or pay a royalty for the right to make prudent investment decisions for retirement.
This example, however, is not the sole problem associated with tax strategy patents. In fact, the troubling ramifications of tax strategy patents are serious and multiple. In particular:
- The issuance of tax strategy patents continues to undermine the ability of taxpayers to pay their taxes in any legally permissible manner.
- The challenges of compliance and legal jeopardy for taxpayers associated with tax strategy patents are severe and daunting.
- As long as tax strategy patents are allowed, it is quite possible that taxpayers will find themselves paying more than Congress intended. The patenting of tax advice forces a choice between paying more in taxes than required or paying a patent royalty payment.
- 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 duties to a client.
- And, simply because the U.S. Patent and Trademark Office has issued a patent does not mean that a tax strategy would be found to be legal by the Internal Revenue Service. A patent implies a false sense of security about a particular strategy.
Fortunately, there is broad, bipartisan support for solving this problem. In addition to the leadership role that Sens. Baucus and Grassley have demonstrated in introducing their bill, Reps. Rick Boucher and Bob Goodlatte, in close consultation with Reps. Howard Berman and Lamar Smith, successfully attached language to the House patent reform bill to ban the issuing of tax strategy patents. In addition, the U.S. Treasury Department has also expressed its concern about this matter. And, finally, Nina Olson, the National Taxpayer Advocate, stated in her 2007 report that addressing this problem was one of her top legislative priorities on behalf of taxpayers.
We hope you will join Sens. Baucus and Grassley in their legislative effort. Your support at this time is critically important, because the Senators have indicated they intend to offer SB 2369 as an amendment to the larger patent bill when it comes before the full Senate in the next few weeks. Your co-sponsorship of the bill would significantly help our legislative prospects moving forward.
Together, we can fix this problem. And, the Virginia Society of CPAs is happy to help you in any way as legislators seek a solution to this policy problem. If we can be of any service to you, please contact me or VSCPA Government Affairs Director Erin Collins at ecollins@vscpa.com or (800) 733-8272.
Sincerely,
Monique T. Valentine, CPA
Chair, Board of Directors
LAST UPDATED 4/16/2008
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