Tax Strategy Patent Amendment Added to House Legislation

July 26, 2007

More federal legislators are stepping up and taking notice of the rising tax strategy patent issue.

On July 18, 2007, the U.S. House Judiciary Committee voted to include a provision that makes tax planning methods not patentable in H.R. 1908, "Patent Reform Act of 2007." The Judiciary Committee voted the bill out of committee, so it will proceed for consideration on the House floor. S. 1145, "Patent Reform Act of 2007, "a similar patent reform bill introduced in the U.S. Senate, is pending in the Senate Judiciary Committee.

A tax planning method is defined as a plan, strategy, technique or scheme that is designed to reduce, minimize or defer, or has, when implemented, the effect of reducing, minimizing,or deferring, a taxpayer's tax liability. It would not include tax preparation software or other tools used solely to perform or model mathematical calculations or prepare tax or information returns.

This is the second time this year federal legislators have addressed tax patents. On May 18, 2007, Rep. Rick Boucher (R-Va.), with co-sponsors Reps. Bob Goodlatte (R-Va.) and Steve Chabot (R-Ohio), introduced H.R. 2365 — legislation that would limit damages and other legal remedies available to holders of patents for tax planning methods — after opposition on tax strategy patents from the VSCPA, American Institute of CPAs and other state CPA societies. H.R. 2365 was referred to the House Subcommittee on Courts, the Internet, and Intellectual Property on June 4, 2007.

The VSCPA has led the nation with its concerns on the patenting of tax advice. Last fall, VSCPA member Maryanne M. McElmurray, CPA, tax director at Brown, Edwards & Company, LLP, in Roanoke, alerted the association about the important issue. On October 6, 2006, the VSCPA issued a statement urging the AICPA and state CPA societies to oppose the practice. In response, the AICPA released an October 16, 2006, update on its efforts.

More information on the tax patent issue is available here in the "Legislative & Regulatory" section of the VSCPA Web site. The AICPA's response to the introduction of H.R. 2365 is available here (PDF). For more information on the VSCPA's position, contact VSCPA Government Affairs Director Erin Collins at (800) 733-8272.