While the Senate’s proposed “Patent Reform Act of 2007” (S.1145) will likely wait until the early months of 2008 for further consideration, lawmakers have introduced an additional proposal that may be offered as an additional amendment to S. 1145. On November 15, 2007, leaders of the Senate Finance Committee introduced “The Stop Tax Haven Abuse Act.” One provision of the Act would prohibit the U.S. Patent and Trademark Office from granting future patents for “tax planning inventions” designed to “reduce, minimize, avoid, or defer” taxpayer liability. Presidential candidate and United States Senator Barack Obama is one of the bill’s co-sponsors.
Senate Finance Committee Chairman Max Baucus (D-Mont.), a co-sponsor, explained that, “the growing number of attorneys and accountants applying for patents of tax strategies and techniques is cause for concern. … Taxpayers should not have to pay a toll charge or worry that they’re violating patent law when they try to file their tax returns. Tax practitioners should be able to provide advice and services to their clients without paying a fee to the patent holder.”
Tax patents are classified in the controversial category of “business method patents.” Popularity of business method patents has risen sharply since 1998, when the U.S. Court of Appeals for the Federal Circuit confirmed their legality in its State Street ruling. According to a Senate Judiciary Committee press release, the U.S. Patent and Trademark Office has granted 60 tax patents since 1998, such as municipal bond patents for structured finance products. Ninety-nine tax patent applications are currently under examination.
The Senate proposal is similar to one approved by the House of Representatives in September 2007 as part of H.R. 1908, its version of the Patent Reform Act of 2007. The Senate proposal, however, appears to prohibit a broader range of tax methods than the House proposal (in addition to tax plans, strategies, techniques and schemes, the Senate proposal prohibits tax processes and systems). Tax preparation software and other tools used solely to prepare tax returns would not be part of the prohibited methods under either bill, however. According to co-sponsor Carl Levin (D-Mich.), the bill will be offered as an amendment to the S. 1145, which was approved by the Senate Judiciary Committee in July and is pending further consideration.