Friday, September 09, 2011

No more tax patents

By 89-9, the Senate passed the patent reform legislation that, among other things, bars future patents on tax strategies.  An estimated 150 such patents have been issued, and 160 are pending, but no more. A distinction is made for tax preparation software, which can still be protected. 

In the old days laws firms used their caches of Private Letter Rulings as a type of intellectual property.  When a firm had a favorable ruling from IRS for one client's strategy, they would share that information with other clients, but not other law firms.  Private Letter Rulings were jealously guarded, they were potent new business tools. Then Tax Analysts successfully sued to make public redacted versions of the Private Rulings, to let everyone in on what the IRS was thinking.

When your tax code is so complicated that compliance strategies can be deemed so unobvious that they are patentable, when lawyers will treat IRS correspondence as trade secrets, I think you have a serious problem. Merely outlawing tax patents isn't the solution.  Radical simplification is needed.  First, go back to Reagan's 1986 Tax Code.  Next, eliminate all deductions for personal expenses--charitable gifts, property taxes, mortgage interest.  Sure, some tax lawyers will lose some business, but the economy will be much better off.  And the feds will have a whole lot more revenue.

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