In 1998, the Federal Circuit Court of Appeals ruled in State Street Bank & Trust v. Signature Financial Group that financial services software that contains algorithms is patentable, according to this case summary by Cornell Law School. Since then, over 130 patents for tax strategies have been granted and over 150 patent applications for tax planning methods are pending, the AICPA reports. The patents cover a range of activities, including real estate transactions, charitable giving, retirement planning, and the granting of stock options.
However, several bills currently under consideration would put an end to the granting of tax patents. Senate Bill 23, commonly referred to as the "America Invents Act," is one such bill. It reads, in part, "any strategy for reducing, avoiding, or deferring tax liability, whether known or unknown at the time of the invention or application for patent, shall be deemed insufficient to differentiate a claimed invention from the prior art." The bill was introduced in January and passed the Senate in March.
Senate Bill 139, also introduced in January, states its purpose is to "provide that certain tax planning strategies are not patentable, and for other purposes." Max Baucus, Montana Democrat, sponsored the bill, which was referred to the Judiciary committee.
Another January event: the Patent & Trademark Office announced that it was re-examining patent 6,567,790, which covers an estate planning method. The letter said that a substantial new question of patentability had been raised.
The AICPA has stated its opposition to tax patents. Among other problems, such patents limit the ability of taxpayers to fully use interpretations of tax law intended by Congress, may cause some taxpayers to pay more tax than Congress intended and cause some to pay more tax than others in similar situations; and hinder compliance by taxpayers, the AICPA states in its position paper.
What are your thoughts on tax patents? Are they legitimate, or a way for some taxpayers to skirt the law --- at the expense of others?