Virginia Congressmen Sponsor Tax Patent Legislation

May 22, 2007

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.

On May 21, VSCPA leaders and staff hit Capitol Hill to visit the offices of Boucher, Goodlatte and other federal legislators to discuss the importance of the tax patent legislation and other issues, such as financial literacy.

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.

"The patenting of tax advice forces a choice between paying more in taxes than required or paying a patent royalty payment," said VSCPA President & CEO Stephanie R. Peters, CAE. "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."

"The VSCPA applauds Virginia congressmen Boucher and Goodlatte for sponsoring legislation that clearly advocates open use of the Internal Revenue Code for all taxpayers," Peters added.

According to AICPA President & CEO Barry Melancon, CPA, 60 tax strategy patents have already been granted, and there are 86 applications pending. "This is a growing problem," Melancon said. "The patents do not pertain to just esoteric portions of the Tax Code affecting a handful of taxpayers; the patents cover a broad range of areas, including estate and gift tax, pension plans, tax-deferred exchanges and deferred compensation, that affect millions of taxpayers."

By enacting legislation that restricts damages for tax strategy patent infringement, the incentive for obtaining these types of patents becomes seriously limited. Tax preparation software is exempt from the legislation's limits on damages.

In its October 6, 2006, letter, the VSCPA raised the following concerns about tax patents, demonstrating the problems they cause for taxpayers and the general public:

  • Who would determine which patent applications should be granted? In the past, the U.S. Patent Office has not been required to employ the tax experts who would be necessary to make those decisions.
  • The Internal Revenue Code is a public domain set of laws, available to anyone. Therefore, anyone could read the Code and determine his or her own appropriate tax strategies.
  • If tax patents were in place, taxpayers would have to choose between paying a royalty fee to the patent holder or paying a higher tax bill than required by law.
  • If tax patents were in place, it would be the taxpayer's responsibility to determine if they were using a patented strategy — or risk violating patent law. However, sufficient information is not available in the U.S. Patent Office database to determine the exact specifics of a tax advice patent award.
  • Even if a patent were granted by the U.S. Patent Office, there would be no guarantee that the tax strategy is legitimate and would not be challenged by the Internal Revenue Service.
  • CPAs are held to strict client confidentiality standards, and would therefore be in an indefensible position if challenged by a patent holder.
  • Tax patents could potentially prevent CPAs from adhering to certain AICPA standards, particularly in a situation where the patent holder obtains an injunction against the practitioner.

H.R. 2365 has been referred to the House Judiciary Committee, which has authority over patent issues.

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.

LAST UPDATED 5/22/2007


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