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PATENTLY ABSURD

June 28, 2006

When browsing through this site's statistics recently I noticed a small flurry of visitors to a post about patenting "tax strategies." This got me to Googling, and it turns out that the Patent Office has a granted a bunch of tax patents. They even keep a list.

Many of these patents look like they're just marketing tools for insurance products. Here is a selection:

taxpatents.JPG

As a loyal resident of the Hartford of the prairie, I'm all for anything that will sell insurance policies. Yet if people get serious about enforcing tax patents, you have a real problem. What could be the public policy argument for allowing only royalty-paying taxpayers to use a given legal tax planning technique? For example, one patent is for "methods and investment instruments for perfoming tax deferred real estate exchanges." People do Section 1031 exchanges every day. Would like-kind exchange specialists be subject to subpoena to see whether they are using a "patented" method to do these relatively routine deals?

Absent ridiculous fishing-expedition subpoenas, tax privacy rules would make these things impossible to enforce. It seems only way a patent could ever be enforced would be when a case makes it to court and it becomes public record. That puts the patent-holder in a bind. The only reason they would be aware of the patent "violation" is because the IRS is attacking it - hardly a good advertisement. Would they continue to seek royalties if their strategy fails in court?

It's not like these tax scientists are curing a disease with a new medicine or stamping out hunger with a new miracle plant strain. It's likely these patents will just generate a bunch of rent-seeking patent jackals trying to extract royalties from routine transactions. I'd rather Senator Grassley pay more attention to this than to pimp taxes.

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