National organizations representing consumer, taxpayer, charitable, financial planning, and tax advisor groups have united to urge Congress to enact legislation to ban tax strategy patents.
Proponents of the ban contend that these patents allow only patent holders to fully utilize interpretations of the tax code intended by Congress, creating a monopoly situation in which only a few may employ certain strategies that would otherwise be made generally available by the wording of the tax code.
“Not only do these patents severely limit tax planning for the general public, they prevent tax practitioners from giving the best possible advice to their clients,” said Michael S. Nelson, CAE, executive vice president of the National Association of Enrolled Agents (NAEA).
“Imagine you are a professional consultant who knows the best answer, but can’t legally share that information with your client because you are hamstrung by restrictions that favor only a few patent holders and their beneficiaries. We must pursue a legislative solution immediately to protect the taxpayer,” Nelson said.
The burden of being aware of which tax strategies have been patented falls to the tax practitioner, who must comply with the patent holder’s requirements. Failure to comply with these requirements puts the practitioner and the client at risk for a lawsuit. But tax advisors are not generally patent experts, so the time, trouble, and added responsibility of ensuring the best advice is not off limits to them will ultimately be passed on to taxpayers in higher tax preparation costs.
Currently, there are 117 patented tax strategies and 151 pending approval, some of which would adversely affect taxpayers’ ability to create a financial plan for funding college education, use incentive programs for health care savings account cards, insure against tax liabilities, and use life insurance to generate income.
Patents already in place adversely affect the use of retirement plans, real estate transactions, deferred compensation, financial investments, charitable giving, and estate and gift tax. Because of the potential for skyrocketing increases in the number of tax strategy patents applied for and issued in the next several years, the national organizations involved in the initiative have asked legislators to ban tax strategies patents before the 111th Congress adjourns.
About the National Association of Enrolled Agents:
The NAEA is the professional society representing tax preparers who have earned the distinction of “enrolled agent” (EA). EAs are federally licensed to represent taxpayers before the IRS.