Why is This Topic Important to Wealth Managers? Today’s blogticle is presented as part of our casual Friday series. Here we present interesting topics that may or may not be directly related to wealth management but have some interesting element worth discussing with this audience. Our discussion in this blogticle focuses on the patentability of tax motivated transactions and strategies.
On Thursday, Congress passed by a vote of 304-117, the America Invests Act (H.R. 1249). One particular provision of the law addresses concerns relating to patenting tax transactions. The proposed law states under Section 14 that for purposes of evaluating an invention for patent issuance purposes, any strategy for reducing, avoiding, or deferring tax liability, shall be deemed insufficient to differentiate a claimed invention from the prior art. In other words, the score may finally be settled as to whether or not tax motivated transaction can be patented under U.S. law. As one commentator notes, it “looks as though the time has come for comprehensive patent reform, which includes the banning of tax strategy patents.” 
For purposes of the new law the term ‘‘tax liability’’ generally refers to any liability for a tax under any Federal, State, or local law, or the law of any foreign jurisdiction, including any statute, rule, regulation, or ordinance that levies, imposes, or assesses such tax liability.
The patenting of tax motivated transactions as type of business method has been the topic of discussion “ever since the Federal Circuit Court of Appeals determined that business methods could be patented in State St. Bank & Trust v. Signature Fin. Group.”  Since then, the Journal of Accountancy Reports “the U.S. Patent and Trademark Office has granted approximately 140 patents on tax strategies.” 
Some professional trade associations such as the AICPA have opposed the issuance of tax motivated transaction patents. The AICPA has in the past noted is discontent with the issuing of such patents. Reasons for some of the concerns are that these patents:
- Limit taxpayers’ ability to use fully tax law interpretations intended by Congress;
- May cause some taxpayers to pay more tax than Congress intended or more than others similarly situated;
- Complicates the provision of tax advice by professionals;
- Hinder compliance by taxpayers;
- Mislead taxpayers into believing that a patented strategy is valid under the tax law; and
- Preclude tax professionals from challenging the validity of a patented strategy. 
A similar version of the bill with the same name has already been passed in the Senate in March.  Now the two houses will work together to reconcile the provisions so that an acceptable version could be signed into law by the White House.
Next week’s bloticles will discuss tools being used by professionals this year related to wealth management.
We invite your opinions and comments by posting them below, or by calling the Panel of Experts.
 Rodger Russell. Accounting Today. “AICPA Opposes Grandfathering of Pending Tax Strategy Patents”. June 24, 2011. http://www.accountingtoday.com/news/AICPA-Opposes-Grandfathering-Pending-Tax-Strategy-Patents-58943-1.html. Last Accessed 6/24/2011.
 Id.; State St. Bank & Trust v. Signature Fin. Group 149 F.3d 1368 (Fed. Cir. 1998).
 See Journal of Accountancy. “House Passes Bill With Tax Patent Provision, Sends Back to Senate.” June 23, 2011. http://www.journalofaccountancy.com/Web/20114248.htm. Last Accessed 6/24/2011.
 See generally, Tax Analysts. “House Approves Bill Banning Tax Strategy Patents”. 2011 TNT 122-3. June 24, 2011, Citing S. 23.