[Congressional Record (Bound Edition), Volume 157 (2011), Part 3]
[Senate]
[Pages 3228-3232]
[From the U.S. Government Publishing Office, www.gpo.gov]




                              TAX PATENTS

  Mr. GRASSLEY. Madam President, I understand there are questions about 
what the tax strategies portion of the bill does and who it impacts. So 
I want to take a few minutes to address those questions.
  In simple terms, a tax strategy is any method for reducing, avoiding, 
or deferring tax liability based upon the tax law--including 
interpretations and applications of the Internal Revenue Code, 
regulations, and related guidance.
  A tax strategy can be as simple as a plan to buy tax-exempt bonds or 
invest in an IRA to reduce your tax liability or as complex as some 
sort of sale-leaseback tax shelter involving multiple domestic and 
foreign corporations and partnerships.
  A tax strategy patent, which is what we are talking about in this 
bill, is just that--a patent on a particular tax strategy.
  Madam President, I ask unanimous consent to have printed in the 
Record an article from a publication called the Tax Adviser. This 
article provides some examples of tax strategies that should not be 
patented.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                 [From the Tax Advisors, Aug. 1, 2007]

                          Patenting Tax Ideas

 (By Justine P. Ransome, J.D., MBA, CPA; and Eileen Sherr, CPA, M.Tax)

                           Executive Summary

       TSPs have been issued in many areas, and many applications 
     are currently pending.
       Such patents thwart Congressional intent and undermine the 
     integrity of, and the public's confidence in, the tax system.
       AICPA will continue to work with the IRS, USPTO, Treasury 
     and Congress to handle--and hopefully resolve--this emerging 
     issue.
       One of the greatest challenges tax practitioners face in 
     providing quality tax services to clients is to keep abreast 
     of the ever-changing complexity of the tax law. Added to this 
     challenge is the burden of determining whether the chosen 
     advice is another party's exclusive property. While this may 
     seem absurd, in the real world of tax consulting, tax 
     advisers must now contend with certain practitioners and 
     companies seeking patents to protect their exclusive right to 
     use various tax planning ideas and techniques they claim to 
     have developed.
       Tax practitioners may be surprised to find that tax 
     strategies they have used routinely in practice are now 
     patented and unavailable for use without the patent holder's 
     permission. The trend of patenting tax strategies is on the 
     rise. This article explores tax-strategy patenting. It 
     provides an overview of the issue and discusses the AICPA's 
     concerns and activities to keep its members informed, as well 
     as its attempts to seek a legislative remedy that will stem 
     the tide of these types of patents.


                               Background

       The Patent Act of 1952 provided that patents may be granted 
     for innovations that are useful, novel and nonobvious. Under 
     35 USC Section 271, a patent gives its holder the exclusive 
     right to make, use and sell the patented idea. The 
     consequences of infringing a patent can be substantial. The 
     remedies for patent infringement under 35 USC Sections 283 
     and 284 include injunctive relief and money damages equal to 
     lost profits or a reasonable royalty. Money damages can be 
     tripled in cases of willful infringement, as authorized under 
     35 USC Section 284; under 35 USC Section 285, attorneys' fees 
     can be awarded to the prevailing party in exceptional cases. 
     Issued patents are presumed valid; under 35 USC Section 282, 
     an accuser must overcome this presumption with clear and 
     convincing evidence to invalidate a patent. Even if an 
     accused is not found liable, defending a lawsuit can be 
     costly.
       In 1998, the Federal Circuit, in State Street Bank & Trust, 
     held that business methods are patentable. Since this 
     decision, patents for business methods have flourished. In 
     some cases, these patents involve processes that would seem 
     to be neither novel nor nonobvious (i.e., other reasonably 
     intelligent people would come to the same or a similar 
     conclusion when confronted with the same or similar issue).
       Recently, the Supreme Court held that the long-standing 
     test used by the lower courts to determine whether an idea 
     was nonobvious was not being applied correctly (and, in fact, 
     was being applied too strictly). The opinion stated that for 
     an idea to be nonobvious, it must be (1) one that would not 
     have occurred to persons of ordinary skill and intelligence 
     in the field of endeavor involved; or (2) previously 
     available knowledge that would have caused a person of 
     ordinary intelligence to affirmatively believe that the idea 
     would not work. Since this decision was just handed down, it 
     remains to be seen what effect it will have on the 
     proliferation of patents for business methods in the future.
       The patenting of business methods has recently crept into 
     the practice of tax planning. At press time, 60 tax-strategy 
     patents (TSPs) have been granted; 86 are pending. There may 
     be additional TSPs; about 10% are generally unpublished, 
     because applicants can elect not to publish a patent if no 
     protection is being sought in a foreign jurisdiction. Also, 
     it can take up to 18 months for

[[Page 3229]]

     a patent application to be published and listed on the USPTO 
     website. As discussed below, many of these patents deal with 
     planning techniques routinely used by tax practitioners in 
     delivering tax services to clients.
     Reasons for Concern
       SOGRAT patent: The primary catalyst for the concern of the 
     AICPA and other tax practitioners was a 2006 infringement 
     suit over the ``SOGRAT patent.'' Awarded by the USPTO on May 
     20, 2003, to Robert C. Slane of Wealth Transfer Group LLC, 
     the SOGRAT patent describes an estate planning technique that 
     uses grantor retained annuity trusts (GRATs) to transfer 
     nonqualified stock options (NQSOs) to younger generations, 
     with few or no gift tax consequences.
       GRATs are permitted under Sec. 2702 and the regulations 
     there under. Many estate planners are familiar with, and 
     routinely use, GRATs to shift a variety of different types of 
     assets to younger generations. Thus, it came as quite a 
     surprise to many estate planners when an article touting the 
     estate tax benefits of placing NQSOs into a GRAT noted that 
     the technique had been patented by one of that article's 
     authors. This surprise grew into concern when the patent 
     holder instituted the above-mentioned patent infringement 
     suit against a taxpayer who implemented the technique without 
     its permission.
       Warning letters: As previously stated, money damages can be 
     tripled in cases of willful infringement (which requires 
     knowledge of the patent). Some patent holders have resorted 
     to mail campaigns and/or press releases touting their patents 
     and warning other tax practitioners that they may be 
     infringing on said patents. For example, one patent 
     infringement warning letter addressed a method for financing 
     future needs of an individual or future intentions on the 
     death of such person, and a method for investing long-term 
     assets of tax-exempt charities. The letter noted that the 
     allowed claims in the patent involve investments used for 
     charitable remainder trusts, pooled-income funds, charitable 
     gift annuities, charitable lead trusts and permanent 
     endowment funds.
       Part of this patent resembles the facts and results of 
     Letter Ruling 90090471 and TAM 9825001. In those rulings, the 
     IRS permitted a net-income charitable remainder unitrust to 
     invest in a tax-deferred annuity contract for the purposes of 
     controlling the timing and amount of income distributions and 
     to otherwise provide a guaranteed death benefit payable to 
     the charitable remainder interest holder. The patent purports 
     to achieve a similar result through the use of tax-deferred 
     arrangements.
       The patent holder also sent a press release to the Planned 
     Giving Design Center (PGDC), a professional organization that 
     provides advice on charitable planning and taxation. An 
     article written by the PGDC's editor noted that the letter 
     ruling and TAM are well known to members of the insurance 
     community in particular, ``which have since facilitated 
     thousands of annuity invested charitable remainder trusts 
     since 1990.'' The article further noted that these rulings 
     are also well known to the IRS, which issued them and 
     subsequently discussed such arrangements in its 1999 
     Continuing Professional Education text. The IRS also added 
     these rulings to its annual ``no-ruling'' list as it studied 
     whether they conveyed an inappropriate tax benefit to 
     taxpayers. The article noted that all of these events 
     occurred well in advance of the date the holder applied for 
     his patent (2004).
       In light of that patent, the AICPA and American Bar 
     Association (ABA) asked the USPTO whether IRS rulings were 
     considered ``prior art'' (and, thus, not novel) if they were 
     not listed in the ``Other References'' section of a patent 
     application. The patent application did not contain a 
     reference to either ruling. The USPTO replied that, although 
     it had not required such information in the past, it would 
     start requesting it for financial-type patents under its Rule 
     105 (which is used to ask applicants for more information).
       Sec. 1031: A patent relying heavily on Sec. 1031 has also 
     drawn tax advisers' attention. The ``Section 1031 deedshare 
     patent'' involves a method and investment instruments 
     (deedshares) for performing tax-deferred real estate 
     exchanges. The patent follows the result in Rev. Proc. 2002-
     22. Its exclusive licensee, CB Richard Ellis Investors, 
     L.L.C., has publicized and warned that it will aggressively 
     pursue patent enforcement.
       Deferred compensation: A patent on hedging liabilities 
     associated with a deferred-compensation plan was granted and 
     assigned to Goldman Sachs & Company. The patent purports to 
     provide a mechanism to hedge the compensation expense 
     liabilities of an employer providing deferred compensation to 
     one or more employees.
       IRAs: A patent has been granted to evaluate the financial 
     consequences of converting a traditional IRA to a Roth IRA. 
     It describes a computer-implemented process for computing the 
     tax consequences of converting to a Roth IRA and various 
     options for funding the taxes, such as term insurance to fund 
     the Federal tax liability of early withdrawal for premature 
     death, calculating the entire rollover amount and financing 
     the tax and insurance premium.
       FSAs: A patent has been granted on flexible spending 
     accounts (FSAs). The patent sets forth a method to calculate 
     costs using a ``health cost calculator'' and ``flexible 
     spending account calculator.''
       FOLIOfn: The trend to patent tax ideas is only in its 
     infancy; however, several individuals and companies already 
     have applied for multiple patents. For example, FOLIOfn, 
     Inc., a brokerage and investment solutions company, holds 
     three TSPs. It has developed methods for tracking and 
     organizing investments and has patented mechanisms and 
     processes that allow users to view and manipulate potential 
     tax consequences of investment decisions. Several of 
     FOLIOfn's other business-method patents are in practice via 
     large licensing agreements. The company is similarly looking 
     for licensing opportunities for its three TSPs but has not 
     yet secured any deals.
       As far as the AICPA is aware, only one of its members (a 
     sole practitioner) has applied for a TSP. The AICPA Tax 
     Division staff discussed the issue with that member. The 
     AICPA has confirmed that, currently, none of the ``Big Four' 
     accounting firms holds TSPs.


                              AICPA Issues

       In a Feb. 28, 2007, letter to Congress, the AICPA outlined 
     its concerns and position on patenting tax strategies. Its 
     position is that TSPs:
       Limit taxpayers' ability to use fully tax law 
     interpretations intended by Congress;
       May cause some taxpayers to pay more tax than Congress 
     intended or more than others similarly situated;
       Complicate the provision of tax advice by professionals;
       Hinder compliance by taxpayers;
       Mislead taxpayers into believing that a patented strategy 
     is valid under the tax law; and
       Preclude tax professionals from challenging the validity of 
     a patented strategy.
       The AICPA is concerned about patents for methods that 
     taxpayers use in arranging their affairs to minimize tax 
     obligations. TSPs may limit taxpayers' ability to use fully 
     interpretations of law intended by Congress. As a result, 
     they thwart Congressional intent and, thus, undermine the 
     integrity of, and the public's confidence in, the tax system. 
     TSPs also unfairly cause some taxpayers to pay more tax than 
     (1) intended by Congress or (2) others similarly situated. 
     The AICPA believes that the conflict with Congressional 
     intent highlights a serious policy reason against allowing 
     patent protection. Allowing a patent on a strategy for 
     complying with a law or regulation is not sound public policy 
     because it creates exclusivity in interpreting the law.
       The AICPA is also concerned with tax law simplicity and 
     administration. TSPs greatly complicate tax advice and 
     compliance. Tax law is already quite complex. The AICPA 
     believes that the addition of rapidly proliferating patents 
     on tax-planning techniques and concepts will render tax 
     compliance much more difficult.
       Because TSPs are granted by the Federal government, the 
     AICPA is concerned that they pose a significant risk to 
     taxpayers. Taxpayers may be misled into believing that a 
     patented tax strategy bears the approval of other government 
     agencies (e.g., the IRS) and, thus, is a valid and viable 
     technique under the tax law. However, this is not the case; 
     the USPTO does not consider the viability of a strategy under 
     the tax law. The USPTO is authorized only to apply the 
     criteria for patent approval as enacted by Congress and as 
     interpreted by the courts. The IRS is not involved in the 
     USPTO's consideration of a TSP application.
       The AICPA is concerned that tax professionals also may be 
     unable, as a practical matter, to challenge the validity of 
     TSPs as being obvious or lacking novelty, due to their 
     professional obligations of client confidentiality. Tax 
     advisers may also find it difficult to defend patent-
     infringement lawsuits due to client confidentiality. The 
     USPTO will also find it difficult, if not impossible, to 
     determine whether proposed tax strategies meet the statutory 
     requirements for patentability because tax advice is 
     generally provided on a confidential basis.
       The usefulness of TSPs is also questionable. The AICPA 
     believes that some of these patents may be sought to prevent 
     tax advisers and taxpayers from using otherwise legally 
     permissible tax-planning techniques, unless they pay a 
     royalty.
       The AICPA is concerned that both tax practitioners and 
     taxpayers may be sued for patent infringement, whether or not 
     the infringer knew about the patent. A taxpayer can infringe 
     a patent without intent or knowledge of it; ignorance of an 
     applicable patent is not a defense. Practitioners must be 
     aware that once they know that a particular tax strategy is 
     patented, using that strategy without the patent holders 
     permission may expose them to claims of willful infringement 
     and triple damages. Unfortunately, the current environment 
     may leave some practitioners with no recourse, other than 
     engaging patent counsel to review and monitor techniques they 
     routinely use.
     Advocacy Efforts and Communications
       Background: In November 2005 and February 2006, the AICPA 
     Trust, Estate & Gift Tax TRP discussed this emerging issue 
     with IRS representatives. In addition, AICPA President Barry 
     Melancon discussed this

[[Page 3230]]

     issue with then-IRS Commissioner Mark Everson on Oct. 17, 
     2006, advising him of the AICPA's concern and desire to take 
     legislative action.
       In January 2006, the AICPA Tax Division's Tax Executive 
     Committee (TEC) decided to form the PTF. This article's 
     authors chair and staff that task force, respectively. The 
     PTF was formed with both large- and small-firm members, from 
     various technical areas of the AICPA Tax Division, including 
     individual, international, partnership, S corporation, tax 
     policy and legislation, and trust, estate and gift taxes. The 
     task force held several conference calls and meetings, 
     including one call with a patent expert who explained the 
     basis for patents and the application process.
       In June 2006, the TEC authorized some PTF members to 
     participate in a joint multi-professional organization task 
     force (including the AICPA, the ABA's Real Property, Probate 
     and Trust Law Section and Tax Section, the American College 
     of Trust and Estate Counsel and the American Bankers 
     Association) on the issue. The joint task force had several 
     conference calls; its chair attended a PTF meeting in 
     November 2006.
       In July 2006, prior to the Congressional hearings on the 
     issue, the PTF discussed its concerns with Capitol Hill 
     staff. This article's authors attended the hearing, then 
     updated AICPA Tax Division members about the issue and 
     hearing via an electronic alert (e-alert) in August 2006.
       In October 2006, the AICPA up-dated members via an update 
     to state CPA societies. In February 2007, the AICPA sent to 
     the leadership of the House and Senate tax-writing and 
     judiciary committees its position on tax-strategy patenting, 
     including legislative proposals. E-alerts went out to the 
     AICPA membership and were included in the April 2007 issue of 
     the AICPA's The CPA Letter. In addition, PTF members authored 
     Journal of Accountancy articles on the subject.
       In March 2007, the PTF drafted and submitted comments to 
     Treasury on the regulations for ``reportable transactions.'' 
     These comments recommended that Treasury not require 
     taxpayers to report patented transactions as reportable 
     transactions, but require the patent holder or USPTO to 
     disclose when the patent is issued.
       The AICPA Congressional and Political Affairs group has 
     made TSPs a top priority and is in discussions with Congress 
     and its staffs, as well as the USPTO's General Counsel and 
     Director of Business Method Patents, to develop and enact 
     legislation designed to bar grants of, or provide immunity 
     for taxpayers and practitioners from liability related to, 
     such patents. Currently, the AICPA's legislative efforts are 
     focused on the judiciary committees, which consider and vote 
     on any patent legislation.
       Action: The AICPA has taken a pro-active role against the 
     patenting of tax ideas. Most of its efforts are reflected in 
     a website it has created on the subject, which contains:
       AICPA comments to Congress, Treasury and the IRS, updates 
     to members, and its PTF roster;
       Comments of other groups and the Joint Committee on 
     Taxation;
       USPTO links;
       Information on specific TSPs;
       Related articles and other information; and
       Links to additional resources.


                           Recommended Steps

       To minimize potential liability until a legislative 
     solution is enacted, tax practitioners should take the 
     following steps, as appropriate, in response to TSPs:
       Stay current on matters regarding TSPs by continually 
     visiting the AICPA website on the subject.
       Read articles and attend conferences about TSPs.
       Continually visit the USPTO website to determine if a tax 
     idea, technique or strategy that a tax practitioner intends 
     to recommend to a client has been issued a patent or if one 
     is pending.
       If a strategy is either already patented or is similar to a 
     patented strategy:
       Advise the client about the patent's existence, the options 
     available and the associated risks;
       Determine whether patent counsel is needed to further 
     investigate the patent; and
       If there is a relevant patent, determine whether to 
     negotiate with the patent holder to be able to use the 
     strategy.


                     Proposed Legislative Solution

       The AICPA has considered various administrative solutions 
     to this issue and concluded that they are insufficient. In 
     its Feb. 28, 2007, letter, it encouraged Congress to develop 
     legislation to eliminate the harmful consequences of TSPs by 
     either (1) restricting the issuance of such patents or (2) 
     providing immunity from patent infringement liability for 
     taxpayers and tax practitioners.
       HR 2365, legislation sought by the AICPA to limit damages 
     and other remedies with respect to patents for tax-planning 
     methods, was introduced by Rep. Rick Boucher (D-VA) on May 
     17, 2007, with initial co-sponsors Reps. Bob Goodlatte (R-VA) 
     and Steve Chabot (R-OH). Reps. Boucher, Goodlatte and Chabot 
     are senior members of the House Judiciary Committee, which 
     has jurisdiction over patent legislation. The bill was 
     referred to that committee. As of May 30, 2007, 14 cosponsors 
     had signed onto the bill. AICPA efforts and discussions 
     continue with other members of Congress, including members of 
     the Senate Judiciary Committee. On May 16, 2007, Reps. Lamar 
     Smith (R-TX), Boucher and Goodlatte sent a letter requesting 
     a hearing on the issue to Howard Berman (D-CA), chairman of 
     the House Judiciary Committee Subcommittee on Courts, the 
     Internet, and Intellectual Property.
     The Future
       The AICPA continues to work with Congress to make 
     legislative changes regarding the patenting of tax 
     strategies. It is also currently working with the USPTO to 
     determine how both organizations might work together to 
     better scrutinize such patent applications. The AICPA will 
     continue to focus its legislative efforts on the judiciary 
     committees and to work with the USPTO, IRS and Treasury, as 
     well as other professional groups, to educate tax advisers on 
     TSPs and to enhance the flow of information among the groups. 
     The PTF and the AICPA will continue to update its website 
     with additional resources for members, develop other 
     educational and practice-oriented tools and study and address 
     related professional ethical issues.


                               Conclusion

       Practitioners and taxpayers need to (1) be aware that TSPs 
     are being granted and (2) review planning approaches and 
     consider consulting with patent counsel, if appropriate. Tax 
     advisers should ask clients about their use of tax 
     strategies, as they may be unknowingly using patented ones. 
     The AICPA will continue to work with the IRS, USPTO, Treasury 
     and Congress to handle--and hopefully resolve--this emerging 
     issue.

  Mr. GRASSLEY. Tax strategies are bad because they allow the tax law 
to be patented. A patent gives the holder the exclusive right to 
exclude others from using the patented invention. A tax strategy patent 
makes taxpayers choose between paying more than legally required in 
taxes or providing a windfall to a tax strategy patentholder by paying 
a royalty to comply with the tax law.
  Tax strategy patents add another layer of complexity to the tax laws 
by requiring taxpayers or their advisers to conduct patent searches and 
exposing them to potential patent infringement lawsuits.
  If a tax strategy patent is granted for a tax shelter designed to 
illegally evade taxes, the fact that a patent was granted may mislead 
unknowing taxpayers into believing the obvious: That the strategy is 
valid under the tax law when, in fact, it might not be.
  Tax strategies are not like other inventions because everyone wants 
to pay less tax. Tax strategy patents are on the rise, which then means 
more and more legal tax strategies are unavailable or, obviously, more 
expensive for more and more taxpayers.
  Madam President, I ask unanimous consent to have printed in the 
Record a letter. This letter, which is from a coalition of 15 consumer 
groups, including the umbrella group for public accountants, the Tax 
Justice Center, and the U.S. Public Interest Research Group, provides 
more information on why tax strategy patents are bad for taxpayers.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                                 February 2, 2011.
     Re Tax Strategy Patents.

     Hon. Patrick J. Leahy,
     Chairman, Committee on the Judiciary, U.S. Senate, 
         Washington, DC.
     Hon. Charles Grassley,
     Ranking Member, Committee on the Judiciary, U.S. Senate, 
         Washington, DC.
       Dear Gentlemen: On behalf of our 15 national organizations 
     representing consumer, taxpayer, charitable, financial 
     planning, and tax advisor groups, we commend you for 
     including a provision in S. 23, The Patent Reform Act of 
     2011, to address the serious problem of tax strategy patents. 
     Similar to legislation recently introduced by Senators Baucus 
     and Grassley, S. 139, we believe that this pro-taxpayer 
     measure is a critical component of any comprehensive patent 
     reform effort. The ongoing, serious concerns associated with 
     tax strategy patents pose a significant threat to American 
     taxpayers and businesses, and we believe that Congress must 
     prioritize fixing this problem as soon as possible.
       As the Senate Judiciary Committee moves to mark up S. 23, 
     we ask you specifically to champion this provision, and 
     aggressively oppose any efforts to weaken or remove it. There 
     is too much at stake to allow special interests to try to 
     monopolize methods of Federal tax compliance, leaving 
     American taxpayers potentially subject to lawsuits. 
     royalties, and a much more complicated, expensive tax code.
       As you know, the problems associated with tax strategy 
     patents are multiple and quite

[[Page 3231]]

     complex. First, such patents may limit the ability of 
     taxpayers to utilize fully interpretations of tax law 
     intended by Congress--effectively creating a monopoly for the 
     patent holders to determine who can and cannot utilize parts 
     of the tax code. Furthermore, tax advisors, who generally are 
     not patent experts, have the burden to be aware of such 
     patents, and either provide tax advice that complies with the 
     patent holder's requirements, risk a lawsuit for themselves 
     and their clients, or potentially not provide the most 
     advantageous advice to clients. Not surprisingly, these 
     patents create a highly burdensome level of cost ultimately 
     borne by taxpayers.
       These patents already affect a myriad of tax planning 
     vehicles, including retirement plans, real estate 
     transactions, deferred compensation, financial investments, 
     charitable giving, and estate planning transfers. We are 
     concerned that the U.S. Patent Office may permit the 
     expansion of these types of patents into additional areas 
     broadly affecting average taxpayers. For example, there are 
     pending patents that would affect taxpayers' ability to 
     create a financial plan for funding college education, 
     utilize incentive programs for health care savings account 
     cards, insure against tax liabilities, and use life insurance 
     to generate income.
       As of now, the numbers of tax strategy patents have grown 
     to over 130 issued and more than 150 pending. We fear this 
     trend is likely to continue to grow exponentially without 
     your leadership. Legislation must be passed quickly if we are 
     to provide taxpayers with equal access to all available 
     avenues of federal tax compliance.
       As you know, there is broad, bipartisan, and growing 
     support for this legislation. In the 111th Congress, 
     Congressmen Rick Boucher and Bob Goodlatte introduced H.R. 
     2584, a similar initiative which ended the Congress with 45 
     cosponsors. That legislation built off of the passage of 
     comprehensive patent reform legislation, passed by the House 
     in the 110th Congress, which included its own tax strategy 
     patents provision. In addition, Senators Baucus and Grassley 
     previously introduced legislation on this topic in the 110th 
     Congress, garnering 30 cosponsors, including then-Senator 
     Barack Obama. The National Taxpayer Advocate, Nina Olsen, has 
     also publicly stated her support for a legislative solution 
     to this problem. Clearly, with such overwhelming support and 
     momentum over the last several years, the time has come to 
     finally enact this proposal and send it to the President.
       Thank you again for your leadership on behalf of American 
     taxpayers. Please contact any of us if we can assist you as 
     you move forward on this important matter.
           Sincerely,
         Barry C. Melancon, CPA, President and Chief Executive 
           Officer, American Institute of Certified Public 
           Accountants; Nicole Tichon, Executive Director, Tax 
           Justice Network USA; Jo Marie Griesgraber, Executive 
           Director, New Rules for Global Finance; Richard M. 
           Lipton, Chair, American College of Tax Counsel; Linda 
           Sherry, National Priorities Director, Consumer Action; 
           Karen M. Moore, President, The American College of 
           Trust and Estate Counsel; Tanya Howe Johnson, President 
           and CEO, Partnership for Philanthropic Planning; 
           Raymond W. Baker, Director, Global Financial Integrity; 
           Edwin P. Morrow, CLU, ChFC, CFP', 
           RFC', Chairman and Chief Executive Officer, 
           International Association for Registered Financial 
           Consultants; H. Stephen Bailey, President, 
           International Association for Registered Financial 
           Consultants; Michael Nelson, Executive Vice President & 
           Chief Executive Officer, National Association of 
           Enrolled Agents; Gary Kalman, Director, Federal 
           Legislative Office, USPIRG; Kevin R. Keller, Chief 
           Executive Officer, Certified Financial Planner Board of 
           Standards; Marvin W. Tutle, CAE, Executive Director/
           CEO, Financial Planning Association; John Akard Jr., 
           JD, CPA, President, American Association of Attorney-
           Certified Public Accountants; Robert S. McIntyre, 
           Director, Citizens for Tax Justice.

  Mr. GRASSLEY. Section 14 of the bill, which has been before the 
Senate for the last week or more, prevents patenting of tax law. It 
provides that a strategy that relies on the tax law to reduce, to 
avoid, or to defer tax liability cannot be novel or nonobvious.
  So a strategy for reducing, avoiding, or deferring tax liability will 
be deemed insufficient to differentiate a claimed invention from the 
prior art for purposes of evaluating an invention under section 102 or 
section 103 of the bill that is before us. This ensures that taxpayers 
and their advisers will then be guaranteed equal access to the tax 
laws, and that is obviously the fair way to do it. It is the 
commonsense way to do it.
  So I wish to be clear that tax preparation software is not a tax 
strategy. Senior policy and examination staff from the Patent and 
Trademark Office agree that such software is not a tax strategy.
  I also have letters from H&R Block, KPMG LLP, and Grant Thornton that 
state that the underlying language does not impact their software 
patents. Again, I ask unanimous consent to have these letters printed 
in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                                    H&R Block,

                                Washington, DC, February 10, 2011.
     Hon. Charles E. Grassley,
     Ranking Member, Senate Judiciary Committee, Dirksen Senate 
         Office Building, Washington, DC.
       Dear Ranking Member Grassley, Our company has reviewed the 
     language in Section 14 of the Patent Reform Act of 2011, now 
     pending in Congress. Although H&R Block holds and is seeking 
     numerous patents pertaining to methods of delivering tax 
     advice and tax return preparation, H&R Block's inventions do 
     not, by their nature, reduce, avoid, or defer tax liability. 
     Therefore, at this time, we do not have any major concerns 
     regarding the language in the Act that statutorily deems that 
     all strategies for reducing, avoiding, or deferring tax 
     liability are `in the prior art' and not patentable. 
     Nonetheless, we should mention that H&R Block is concerned 
     about the precedent that this bill will set. Our fear is that 
     Congress is going down the path where, in the future, it will 
     simply declare ``not patentable'' any subject matter it deems 
     to be unpopular or politically unfavorable.
           Sincerely,
                                                    Brian Donohue,
     AVP, Government Relations.
                                  ____



                                                     KPMG LLP,

                                Washington, DC, February 25, 2011.
     Hon. Patrick Leahy, Chairman,
     Hon. Charles Grassley, Ranking Member,
     U.S. Senate Committee on the Judiciary 224 Dirksen Senate 
         Office Building Washington, DC.
       Dear Chairman Leahy and Ranking Member Grassley: We would 
     like to commend you on the inclusion of section 14--a ban on 
     the patenting of tax strategies--in S. 23, the Patent Reform 
     Act of 2011, recently approved and reported by the Committee.
       We agree with the sentiments expressed by Sen. Grassley on 
     February 3rd that ``[i]f firms or individuals were able to 
     hold patents for these strategies, some taxpayers could face 
     fees simply for complying with the tax code.'' Taxpayers 
     should not be forced to choose between paying more tax than 
     they are legally obligated to pay or paying royalties to a 
     third party with a patent on a legal method of complying with 
     tax law. Tax strategy patents create higher costs and produce 
     confusion for taxpayers and their advisors.
       As noted by the AICPA in its letter to you, tax strategy 
     patents undermine Congressional authority, intent, and 
     control of tax policy, and would create inequalities among 
     taxpayers. No person should hold exclusive rights over how to 
     comply with the Tax Code.
       We are a firm with extensive experience in the provision of 
     tax advice to clients, and we are a firm that develops its 
     own proprietary tax tools, including computer software. We 
     therefore appreciate the proper balance between the 
     protection of intellectual property rights and the public 
     policy concerns implicated by extending that protection to 
     patents on tax planning. This bill gives proper deference to 
     the rights of the taxpayer and the already complex 
     requirements of a tax advisor. We therefore urge inclusion of 
     section 14 by the Senate in the final version of S. 23.
           Respectfully yours,
     KPMG LLP.
                                  ____



                                               Grant Thornton,

                                Washington, DC, February 24, 2011.
     Re: Tax strategy patent legislation.
     Hon. Patrick J. Leahy,
     Chairman, Committee on the Judiciary, U.S. Senate, 
         Washington, DC.
     Hon. Charles Grassley,
     Ranking Member, Committee on the Judiciary, U.S. Senate, 
         Washington, DC.
       Dear Gentlemen: I am writing to offer Grant Thornton's 
     strong support for the tax strategy patent provision included 
     in the patent reform legislation (S. 23) recently approved by 
     the Senate Judiciary Committee and now poised for full Senate 
     consideration. I would like to commend you for your 
     commitment to addressing the problems created by tax strategy 
     patents and for including the tax strategy patent provision 
     in S. 23.
       Patents on tax strategy methods threaten the integrity, 
     fairness, and administration of the tax system, and Grant 
     Thornton believes resolving this problem must be an essential 
     component of any patent reform legislation. Grant Thornton 
     wants to encourage you to aggressively oppose efforts to 
     remove or weaken the tax strategy patent provision in S. 23.

[[Page 3232]]

       Tax strategy patents grant private legal parties virtual 
     20-year monopolies over particular methods of compliance with 
     U.S. tax laws. Taxpayers cannot satisfy their legal 
     obligations using a patented interpretation of the tax code, 
     allowing patent holders to privatize tax provisions that 
     Congress intended for everyone. This makes a uniform 
     application of the U.S. Tax Code impossible, potentially 
     forcing taxpayers to pay more tax than Congress intended and 
     more tax than similarly situated taxpayers. Tax strategy 
     patents threaten to undermine public confidence in the 
     nation's tax laws, hinder compliance, and mislead taxpayers 
     into believing that a patented strategy has been approved by 
     the IRS solely because a patent was granted. In addition, tax 
     strategy patents increase the costs and burdens of 
     compliance. Preparers and taxpayers must not only determine 
     the proper tax treatment of an item, but also whether that 
     treatment is covered by a patent, whether the patent might be 
     infringed by properly reporting the item, and whether the 
     patent is valid.
       Grant Thornton believes that no one should have a patent on 
     the application of the law to the facts and that the granting 
     of tax strategy patents should be prohibited by legislation. 
     Grant Thornton supports the provision in Section 14 of S. 23, 
     which is based on the freestanding legislation S. 139. The 
     new provision builds on previous legislative efforts that 
     enjoyed wide bipartisan support in both chambers. In the 
     110th Congress, the House passed a patent reform bill that 
     would have barred tax strategy patents.
       The new language in S. 23 would designate any claim on a 
     patent application for a ``strategy for reducing, avoiding, 
     or deferring tax liability'' as indistinguishable from prior 
     art, and thus preclude applicants from using a tax strategy 
     as the point of novelty. Grant Thornton believes this 
     provision needs to be enacted quickly. Over 130 tax strategy 
     patents have already ben approved and more than 150 are 
     currently pending.
       Grant Thornton agrees that patents should continue to be 
     available for tax preparation software, so long as the patent 
     does not extend to tax strategies embedded in the software. 
     Grant Thornton believes the bill sufficiently addresses the 
     serious concerns raised by tax strategy patents without 
     infringing on the rights of others to copyright, trademark or 
     patent software that assists in the implementation of tax 
     planning.
       Grant Thornton is the U.S. member firm of Grant Thornton 
     International, one of the six global accounting, tax and 
     business advisory organizations. Through member and 
     correspondent firms in over 100 countries, including 49 
     offices in the United States, the partners and employees of 
     Grant Thornton member firms provide personalized attention 
     and the highest quality service to public and private clients 
     around the globe.
           Sincerely yours,
                                                 David B. Auclair,
               Managing Principal, Washington National Tax Office.

  Mr. GRASSLEY. However, now, in order to allay the concerns of Intuit, 
makers of Turbo Tax, I have worked with Senator Baucus to make clear 
that tax preparation software such as Turbo Tax is not a tax strategy.
  Financial management software, however, is a little murkier. While 
products such as Quicken and QuickBooks are not tax strategies, tax 
strategies can be embedded in financial management products and 
software. The investment banks and the law firms that have patented tax 
strategies often use software that could be deemed financial management 
software. The Tax Adviser article I mentioned earlier and got unanimous 
consent to have printed in the Record describes some of these. With 
financial management software, patent claims that include inventions 
that are severable from tax strategies may be entitled to patent 
protection, but the tax strategy itself will remain available to all 
taxpayers.
  So it is important to protect intellectual property rights for true 
tax preparation and financial management software. However, we must be 
sure to protect the rights of taxpayers to have equal access to legal 
tax strategies.
  I yield the floor, and I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The bill clerk proceeded to call the roll.
  Mr. LEAHY. Madam President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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