House Passes Bill to Prohibit Tax Strategy Patents

September 7, 2007

On September 7, 2007, the U.S. House of Representatives passed important legislation to prohibit patents on tax-planning strategies. The language was included in the "Patent Reform Act of 2007" (H.R. 1908), which passed with a vote of 220 to 175.

The VSCPA has closely monitored the tax patent issue since 2006, when it led the nation with its concerns. 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 American Institute of CPAs (AICPA) and state CPA societies to oppose the practice.

The VSCPA believes that 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 duty to a client.

In May 2007, Virginia Reps. Rick Boucher (D) and Bob Goodlatte (R), along with Steve Chabot (R-Ohio), championed the cause by introducing legislation to limit damages and other legal remedies available to holders of patents for tax planning methods.

The AICPA supports the prohibition of these patents. According to AICPA President & CEO Barry C. Melancon, CPA, 60 tax strategy patents have already been granted and that 99 more are pending. “Our underlying concern with tax strategy patents,” Melancon said, “is that they violate the core principle of equity that is the foundation of our voluntary tax system.”

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