Paul L. Caron

Wednesday, July 26, 2006

WSJ on Patenting Tax Advice

Interesting article in today's Wall Street Journal:  Patented Tax Strategies May Fail To Shield You From the IRS, by Tom Herman:

It's tough enough to figure out whether a complex tax strategy is right for you -- let alone legal. Now there's something else to worry about: Getting sued by someone who has patented the technique. It may sound surprising that tax and financial-planning ideas can be patented at all. They can, just like gadgets and other inventions. While the number of tax-related patents is still small, it appears to be growing -- and is attracting attention in Congress, at the Internal Revenue Service and among tax professionals facing increasingly intense competition for wealthy clients. Adding to the interest is a lawsuit filed earlier this year against a Connecticut executive for allegedly using a tax strategy patented by a Florida man in 2003.

IRS officials and some tax lawyers worry taxpayers may be fooled into thinking that a "patented" tax strategy automatically bears the government's seal of approval -- which it doesn't. "Just so there is no misunderstanding today on this point, let me be clear," IRS Commissioner Mark Everson told a congressional panel earlier this month. "The grant of a patent for a tax strategy has absolutely no impact on IRS's determination of the effectiveness or the legitimacy of the strategy."

Lawyers, meanwhile, are questioning whether someone should be allowed to impose what amounts to a toll charge on someone else for using a technique to reduce taxes lawfully. "The proliferation of tax-strategy patents would change and burden tax practice," says Ellen Aprill, a tax-law professor and associate dean for academic programs at Loyola Law School in Los Angeles.

For prior TaxProf Blog coverage, see here.

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