Senator Levin Cosponsors Bill to Ban Patents on Strategies to Reduce Taxes

November 15, 2007 -- WASHINGTON -- Senator Carl Levin, D-Mich., today joined a bipartisan group of senators in introducing legislation that would amend the patent law to bar the granting of patents for “tax planning inventions,” including strategies or systems to avoid taxes. Senate Finance Committee Chairman Max Baucus, D-Mont., and Ranking Member Chuck Grassley, R-Iowa, are the lead sponsors of the bill, which has been referred to the Judiciary Committee for consideration.

“One of the problems,” Levin said, “is that as a matter of public policy, everyone ought to have the same right to take advantage of the law to minimize their taxes. Granting patents on legitimate tax reduction strategies will have the opposite result. People would have to pay the patent holder to obtain access to tax benefits that they’re legally entitled to.

“Also, patents are traditionally granted to encourage innovation, but that isn’t required in the tax arena -- folks already have all the motivation they need to minimize their taxes,” Levin said. “The last thing we need is another incentive for aggressive tax shelters – gimmicks that seek to exploit loopholes for tax avoidance purposes.”

The bill would prohibit granting a patent for any plan, strategy, technique, scheme, process, or system that is designed to avoid taxes, but would exempt tax preparation software that helps taxpayers fill out their tax returns. In 1998, a federal appeals court ruled for the first time that business methods could be patented and, since then, tax practitioners have filed more than 50 applications to patent tax strategies.

“Issuing tax-avoidance patents raises numerous public policy concerns,” Levin continued. “The Patent Office isn’t staffed with tax experts and could end up granting patents for abusive tax shelters. Those patents would then remain in place for years, producing revenue for tax avoiders while the IRS battles them in court.”

In addition to Baucus, Grassley, and Levin, other cosponsors of the bill include Sens. Ron Wyden, D-Ore., Barack Obama, D-Ill., and Jeff Bingaman, D-N.M.

Levin was the first Member of Congress to introduce legislation to ban tax patents, including it as section 303 in his Stop Tax Havens Abuse Act, S. 681.

The bill is expected to be offered as an amendment when the Senate considers legislation to reform U.S. patent law. The House has already approved a patent reform bill that contains a similar provision banning tax patents.

Source: Senator Carl Levin

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