U.S. Senator Debbie Stabenow has joined her Michigan colleague, Senator Carl Levin, as a co-sponsor of federal legislation seeking to ban the issuance of patents on tax strategies. Senate Bill 2369, endorsed by both the MACPA and AICPA, would allow tax practitioners and clients the freedom to utilize interpretations of tax law and allow for the validity of tax strategies to be challenged on behalf of their clients without risking legal recourse.

Current law defined by The Patent Act of 1952 provides that patents may be granted for innovations that are useful, novel and non-obvious. And as a result of a 1998 U.S. Federal Court of Appeals case, State Street Bank & Trust v. Signature Financial Group, Inc., it is held that business methods fall into this category of patentable inventions.

Since the decision in 1998, more than 60 patents on tax strategies have been issued with many more applications pending. They cover a variety of areas including estate and gift tax, pension plans, charitable giving and deferred compensation.

However, in recent years the concern of tax practitioners, taxpayers and congressional tax writers over the patenting of tax strategies has grown. In 2006, Congress began to formally address the issue. Prior to a hearing of the Subcommittee on Select Revenue Measures of the House of Representatives Committee on Ways and Means, the AICPA voiced its opposition to such patents. The AICPA spoke before Congressional staff and generally supported the testimony given by, among other leading experts, IRS Commissioner Mark Everson. Testimony highlighted how legal restrictions on the use of tax strategies harm the public.

In essence, patents on tax strategies undermine the integrity of the nation’s tax system, creating inequalities among taxpayers and restricting tax preparers from advising and protecting their clients to the full extent of the law.

This issue, already addressed by the House of Representatives in the passage of House Resolution 1908, the Patent Reform Act of 2007 is now being taken up through S. 2369 in the U.S. Senate. The MACPA congratulates Senators Stabenow and Levin for recognizing this important legislation and applaud their public support.