Congress Calls For Possible Ban On Tax Patents

by Mike Godfrey, Tax-News.com, Washington

26 September 2007

Recent Congressional moves have led observers to suggest that patents for tax-planning strategies may be banned.

Although only 60 such patents have been cleared by the U.S government in the past ten years, according to US media reports, there are thought to be at least another 99 due for review.

The provision proposing the banning of tax planning patents was added to the patent reform legislation which was recently passed by the House of Representatives, and which, among many important reforms, would create a pure "first-to-file" system to bring clarity and certainty to the US patent system.

The bill also attempts to create a more "streamlined and effective" way of challenging the validity and enforceability of patents, by allowing reviews to be undertaken of patents after they have been granted.

Speaking to the Wall Street Journal with regard to the proposed legislation, Washington Attorney Stephen Schreiner suggested that the complexity of the situation will inevitably have unexpected effects for all American citizens in some form or another, stating: "This is a case where there's a knee-jerk reaction."

Earlier this month, the White House insisted that President George W. Bush's chief economic advisor, Edward Lazear, would not profit from a corporate tax minimisation scheme patent application upon which his name appears.

According to Dow Jones Newswires, White House spokesman Tony Fratto explained that Lazear, chairman of Bush's Council of Economic Advisers, "stands in no way to benefit from the patent", and he brushed aside concerns that a pending patent application for the scheme - which would help companies to reduce their corporate tax liability - represents a conflict of interest.

Fratto said that Lazear's name is mentioned in the application because the algorithm used in the scheme was invented by Lazear for an earlier project. The spokesman also offered assurances that the chief economic advisor had severed his ties with the company that owns the patent, California-based Liquid Engines.

The revelation came as something of an embarrassment for the administration, which is spearheading a strong crackdown on the use of dubious tax shelters by corporations and wealthy individuals, which have cost the Treasury billions of dollars in foregone tax revenues in recent years.

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