A Tax Idea

A Tax Idea

November 01, 2010

A tax idea was not stolen, a state appeals court in California concluded in late October. John S. Karls came up with a way for two companies to combine some of their income in a manner that would create a tax liability in two countries, one of which allows a foreign tax credit for the taxes paid in the other country, and allow both companies to claim essentially the same foreign tax credit. He has sued a series of banks that he said used the idea without his permission, claiming they stole property belonging to him and asking for damages equal to four times the tax credits claimed. He had no patent or copyright protection for the idea. Karls lost in a lower court in his case against Wachovia and Wells Fargo. An appeals court in California said in late October that the lower court was right. The bare use of an idea by someone else, without showing anything more, is not an adequate basis for a lawsuit, the court said. The court also said that a two-year statute of limitations for bringing such a claim had expired. The case is Karls v. Wachovia Trust Co. of California. The appeals court released its decision on October 27.

By Keith Martin