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PAY YOUR TAXES ON TIME! (PATENT PENDING)

November 01, 2005

Real scientists often patent their discoveries. It never occurred to us that tax scientists would want patents, too.

Yet it is so, according to a story in Tax Analysts today (subscriber only link):

The ability of tax advisers to patent their cleverly constructed arrangements emerged as a hot-button issue not only for the IRS, but also for the AICPA. Once a patent right is issued, the holder of the right essentially owns the transaction or structure. This would, in theory, allow the patentholder to prevent other taxpayers from engaging in the same arrangement. Taxpayers and advisers who independently devised the same arrangement could be found liable under patent infringement laws and forced to pay damages -- even if they lacked any knowledge of the patent.

The IRS isn't pleased, according to the article. In a speech before an AICPA tax conference, Joseph Bonaffini, program manager of the IRS Estate and Gift Tax Program, said the IRS will soon meet with Patent Office representatives to urge them not to issue such papents:

Bonaffini questioned whether the PTO staff has adequate background in tax law and estate planning to properly rule on such patent applications. Even a well-seasoned patent attorney might not be in an appropriate position to determine whether a given tax minimization scheme is an original work. "That's why we're here," Bonaffini said, "to advise them."

Under the "prior art" doctrine, patent applications should be rejected if the subject matter is neither new nor original. Speculation was ripe among attendees that the tax patents issued to date should have been invalid under the prior art doctrine. "The PTO is getting it wrong," one member, who wished to remain anonymous, told Tax Analysts.

The article says that tax planning may be patentable if it gets around these obstacles, and that legislation may be required to stop such patents.

It's hard to know where to begin mocking such patents. The chutzpah needed to assert that you are the very first person to arrive at some super-genius tax idea is breathtaking, for starters. Unless, of course, you are Professor Maule, who really is that smart.

There are also many practical problems. For starters, your patent application would have to be specific enough to probably tell everyone what your super-genius plan is. Yes, it would be illegal for somebody else to use it, but tax returns are confidential by law. The whole tax world could read and use your super-genius tax plan and you'd never know. You'd never collect your "just" royalties. You'd never even get a thank-you note.

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