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'THE TAX LAW SHOULD BE AN OPEN ROAD, NOT A TOLL ROAD'

August 18, 2006

The New York State Bar Association Tax Division addresses the policy issues in patenting tax advice in a letter to tax policymakers (hat tip: Tax Analysts ($link)). They conclude such patents are unwise:

The patenting of ideas or strategies relating to areas involving legal issues raises difficult issues not limited to the tax area. The tax laws, however, are perhaps unique in that they impose universal affirmative obligations of compliance on U.S. citizens and residents. The entrepreneur that wishes to set up a new business requiring some patented technology to operate always has the choice to pay the royalty or not to engage in the business in question, and will weigh the costs against the expected profits. But when the same entrepreneur enters into even the simplest transaction - for example, incorporating his sole proprietorship - he has no choice but to seek tax advice, if for no other reason than to report the transaction correctly on his tax return. The patenting of tax strategies would invariably increase the cost to taxpayers of complying with their tax obligations, a result we think is indefensible as a policy matter. For this reason, we believe that tax strategies and tax ideas should be generally available to all taxpayers. The tax law should be an open road, not a toll road.

Exactly. While they don't say it quite so bluntly, the enforcement of tax patents would require practitioners to have to spend time making sure they aren't infringing on some patent. Inevitably rent-seeking patent jackals would file for patents on everything in sight, and luckless practitioners and taxpayers engaging in routine transactions would have to either pay extortion or spend time and money fighting the alleged patents.

Folks in the technology business might say, "Welcome to our world, tax boy. Welcome to Hell." The point is well taken, but two wrongs don't make a right. And while not everyone has to invent things or market products, everybody has to comply with the tax law. That's expensive enough without having to pay a toll charge to a holder of some dubious tax patent.

In related news, I have chosen not to participate in the Stratford patent webcast on tax patents mentioned here. I decided I lack the time to prepare for it, and I don't want to blunder in and make a fool of myself. Sure, I don't let it stop me here, but that's different...

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