THE US PATENT OFFICE has issued as many as 122 patents on tax products and has another 151 applications pending. A coalition of 18 organizations sent Congress a letter in late September urging it to ban such patents to the extent they protect tax strategies.

Congress has been considering the issue since 2006. A House subcommittee held a hearing in July that year. If such patents become more widespread, they could force tax
lawyers to research whether someone has applied for a patent on every tax-planning idea before using it with a client. 

The new chairman of the House tax-writing committee, Dave Camp (R.-Michigan), has been a critic of tax patents. Many of the patents are for computer software that carries out tax calculations rather than for tax-planning ideas. Some also involve tax planning as part of a larger business strategy. For example, US patent number 6,772,128 involves a method for using an insurance policy combined with a trust to cover the cost of decommissioning nuclear power plants. The patent claims the method produces tax  efficiencies, but the main focus is on the structure for the insurance. 

Patents can be obtained for “business methods” that are both novel and not obvious. A search of the pending applications shows they include requests for patent protection for
“power purchase methods, agreements and financial instruments for tax-advantaged financing residential renewable energy equipment,” “risk-shifting method for investments in wind power generation” and “method for enabling American Indian tribes to attract equity capital investment.”

The already-issued patents include a “method for capital creation for tax-exempt organizations,” “synthetic funds having structured notes,” “structured credit enhancements,”  “convertible financial instruments with contingent payments” and “methods and investment instruments for performing tax-deferred real estate exchanges.” 

According to Walter Hanchuk, a Chadbourne patent lawyer, anyone using a patented business method could become liable for royalties from the date the application is published—not just from the date a patent is issued—assuming a patent is ultimately issued.