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Putting patents on saving money

Tax forms

KAI RYSSDAL: Figuring out patent law can be about as much fun as deciphering the tax code. Well, probably less fun than that. And now it looks like tax accountants might have to do both at the same time. A growing number of inventors are patenting strategies that could save you money on your taxes. If you use one of those strategies without permission? Well, that's called patent infringement. Janet Babin reports from the Marketplace Innovations Desk at North Carolina Public Radio.


JANET BABIN: So this story about patents on tax strategies starts out in a field — down the street from my house, where a few cows live next to their owner's 50s style brick ranch.
[SOUND: Cow moo]

I've been waiting for quite some time to hear that cow moo. See, that cow could be worth a lot of money in tax-relief to its owner, just like an alpaca or a llama would.

And in fact, alpacas and cows are sometimes deductible. The method isn't patented, but there's a chance it could be. And if it were, then we'd all have to pay a royalty fee to use the strategy, or maybe not use it at all.

JOSH LERNER: Well, I've got a few donkeys myself, so maybe I should rush out and file the patent myself on that idea.

That's Josh Lerner of Harvard Business School. He says such a patent wouldn't be all that far-fetched.

As proof, he points to the patent involving retirement accounts — IRA's. It covers a method that helps you decide whether you'll save money on your taxes if you convert your standard IRA to a Roth IRA.

LERNER: It's not really rocket science, right, in the sense that you're going to think what your tax rate is now, what your best guess in terms of tax is going to be going forward. And what kind of rate of return you expect to get during the years until you retire.

Lerner says such a basic calculation doesn't deserve government protection. But it got it.

A court ruling in the 1990s gave birth to tax patents. The decision made it clear that business methods are patentable.

Tax strategies are considered a subset of business methods. Since 1992, the U.S. patent office has issued 53 tax-strategy patents — and 84 are pending. This trend has the American Institute of Certified Public Accountants calling for reform.

The group's Tom Ochsenschlager

says not only do taxpayers and preparers now have to know internal revenue service regulations . . .

TOM OCHSENSCHLAGER: But they also have to be a little bit concerned as to whether they're violating a patent when they're doing some fairly normal tax planning ideas when they're preparing their tax returns.

Someone's already been sued for using a patented tax strategy. It was an Aetna insurance executive in Connecticut. He apparently used a tax method that shields certain stock options from taxation.

Robert Slane owns the patent. He had to work to come up with it.

ROBERT SLANE: Just a lot of reading and thinking outside the box.

So if you were him, wouldn't you want to be compensated for all that midnight-oil burning?

His attorney, Steve Milbrath, likely thinks that you would. And, he says, patents could make tax shelters or deductions more transparent. That would create a level playing field.

STEVE MILBRATH: There is no smoke-filled room, there is no secret filing of tax returns with the details buried.

Intellectual property lawyer Stephen Schreiner says to be patent-worthy, inventions have to be new, useful, and non-obvious. If a tax strategy fits that description, he says there's no reason why it shouldn't get one.

Schreiner says the people calling for an end to tax patents are special interest groups with an axe to grind.

STEPHEN SCHREINER: The parties that are really pushing this issue before the Congress are tax attorneys and accountants.

And Congress has responded to the issue. Senator Barack Obama included a tax-patent exclusion in a bill he recently co-sponsored.

But for this tax season, you might want make sure your tax strategy isn't owned by someone demanding a licensing fee.

I'm Janet Babin for Marketplace.

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