Good news for planners: Bill aims to scuttle tax strategy patents

Future tax seasons may become a little less complicated for financial planners under a bill that is awaiting Senate action. The Senate Judiciary Committee last week unanimously approved the Patent Reform Act of 2011, which contains a provision that would eliminate patents on tax strategies. The bill has not yet been scheduled for Senate floor debate. The House has yet to take up a similar measure. Under current law, financial planners must be aware of the various patents that are in force in the complex web of U.S. tax rules. The Financial Planning Association, which backs the patent bill provision, said that the situation hinders the creation of tax plans. “Patenting tax strategies and corresponding ‘advice' has been an increasing problem because it limits the ability of taxpayers to fully utilize interpretations of tax law intended by Congress,” the FPA said in a statement. “Many feel that it has created a monopoly for the patent holders to determine who can and cannot utilize parts of the tax code.” For instance, there is a patent on how to put stock options into a grantor retained annuity trust, according to Phillips Hinch, assistant director of government relations at FPA. If a planner wanted to recommend such a strategy, he or she would have to get permission or risk litigation. It's the equivalent of the Super Bowl champion Green Bay Packers trademarking one of the routes that their receivers run, according to Mr. Hinch. “It's sort of like a football team claiming ownership of a play like a Hail Mary and not allowing anyone else to use it.” The unanimous support that the bill garnered in the Senate Judiciary Committee indicates that the measure will probably be approved by the full Senate, although the timeline is unknown. “We're just hoping it moves forward,” Mr. Hinch said.