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July 2008 |
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Patented Tax Strategies: A Serious Threat to Tax Advisers Since a 1998 decision of the U.S. Federal Circuit Court of Appeals upholding the patenting of “business methods,” at least 65 patents for tax strategies have been granted by the U.S. Patent and Trademark Office (USPTO), and at least 110 patent applications for tax strategies are currently pending. CPAs can check the USPTO website to determine if a tax strategy has been patented or if one is pending.1 Patents have been granted in a variety of tax areas, including estate and gift, charitable giving, financial products, pension plans, and tax-deferred exchanges. For example, a patent relying on IRC Sec. 1031 was granted for performing certain tax-deferred exchanges of real estate. Also, patents were granted to evaluate the financial consequences of converting a traditional IRA to a Roth IRA and to use GRATs for tax savings to transfer stock options to family members. It is expected that the next round of tax planning patents will be aimed at average taxpayers in the areas of income tax and AMT minimization and itemized deduction maximization. As most CPAs with tax experience will attest, these “strategies” are not novel or complex, and should not be protected as patentable. CPAs in tax practice are obviously concerned that patented tax strategies will place an increasing burden and risk on them. First, CPAs could inadvertently infringe on those patents because many of the protected processes are considered common tax planning techniques. Second, CPAs are not trained in patent law, and determining if a tax planning strategy infringes on an inventor’s rights can be an arduous task. The AICPA has vigorously worked to urge Congress to restrict patents for tax strategies. In the AICPA’s view, these patents limit the ability of taxpayers to fully utilize interpretations of tax law as intended by Congress, causing some taxpayers to pay more than Congress intended and causing some taxpayers to pay more tax than others similarly situated. It is the AICPA’s feeling that tax patents usurp congressional authority and create a private monopoly by granting the patent holder an exclusive use of provisions of public laws, as well as impose a burden on taxpayers and tax advisers who could be hit with infringement lawsuits and demands for royalties. In addition, patents complicate tax preparation, increase costs of compliance and administration, and mislead taxpayers into believing that a patented strategy is valid under the tax law, according to the AICPA. At the state level, the Board of Directors of the North Dakota Society of CPAs has supported restrictions on tax patents. At the recent June meeting of the Society Board in Mandan, the Board unanimously voted to support legislation to restrict tax patents. At the Board’s direction, I recently mailed a letter to Senator Byron Dorgan expressing our support for tax patent reform on behalf of our Society membership. If you would like a copy of my letter to Senator Dorgan, please let me know. Although many of us are optimistic there will be restrictions placed on tax patents, it is impossible to predict if there will actually be any reform at all. If there is no significant reform to the tax patent law, there will continue to be a significant impact on CPAs who recommend and implement tax planning plans that have previously been patented by someone else. CPAs could be liable for damages to the patent holder even if the tax adviser independently came up with the tax planning strategy. For CPAs in tax practice to minimize their risk exposure, they should stay current on this issue by reading articles and attending CPE tax conferences on tax patents, and they should check the USPTO website to determine if a potential recommended tax planning technique has been issued a patent or if one is pending. If so, the CPA must advise the client accordingly and determine whether patent counsel is needed. If you have any questions or opinions regarding this tax patent issue, please do not hesitate to call me at 1-701-492-0326 or terry.knoepfle@ndsu.edu. 1. To get an almost up-to-date list of tax patents issued and tax patents pending, see the USPTO website (www.uspto.gov/patft/index.html) and, in either the “Issued Patents” or “Published Applications” area, click on “Advanced Search,” enter in the query box the search code “ccl/705/36T” and click “Search.” Please note that this information can be relatively difficult to navigate and understand, and some tax patents are not listed here. Also, a patent application can be kept private or not published until 18 months after it has been filed. May 2008 Spring has “sprung,” and the robins are back. For most of us, it also signifies that busy season is over or at least close to over. This “end of busy season” feeling is hard to describe, but it sure was evident by the smiles and laughter of those CPAs attending the recent meeting of the Fargo-Moorhead CPAs just a few days after the April 15 tax deadline. The globalization of accounting is on the fast track. According to a recent worldwide survey of leaders in the accounting profession, convergence to a single set of international accounting standards is a key to economic development. Specifically, when asked about issues facing accountants in business, these leaders ranked application of new international standards as number one. As a result of this accelerated pace towards globalization of accounting standards, it is not a question of if but when. Five years from now, it is likely that U.S. public companies will be following international accounting standards (IFRS), and only one standard setter, the IASB (not FASB), will establish IFRS (not GAAP). It is obvious that the new international standards are coming, but lots of issues remain. One major issue is how the new international standards will be put into practice in the U.S. There are lots of different opinions on details of the process, but implementing the new standards will be expensive and complex. Another major issue is the current legal environment in the U.S., where many fear that accepting IFRS’s looser principles and fewer bright-line rules could expose accounting firms and companies to additional legal liability. From a tax perspective, the international standards do not allow the use of LIFO inventory accounting, which confers sizable tax benefits for many companies. If these companies have to switch to IFRS, they may have a significant tax liability. Other concerns about IFRS include adequate funding for the IASB, impact on academia and the CPA examination, enforceability of the new standards, representation of the U.S. on the IASB, impact on financial statements, professional training and education needed in a short time period, and the future role (if any) of FASB. In North Dakota, we will not be insulated from these new standards. Our Society members from academia, small and large accounting firms, and business/industry will need to pay close attention to the evolution and applicability of these global accounting standards. These standards will be affecting students, clients, and companies much sooner than we may think. In recognition of the convergence of the global market and new accounting standards, our ND CPA Society and the AICPA will need to stand ready to lead and assist members with their professional responsibilities as we convert to the international standards. To that goal, both the NDSCPA and AICPA must work to provide training and education, influence the content of the CPA examination, develop best practices and solutions, and strongly advocate for changes as needed. If you have any questions on this convergence of accounting standards or any other matters related to our discipline, please contact me at 1-701-231-7549 or terry.knoepfle@ndsu.edu. March 2008 Interstate Mobility Catches Momentum As our accounting profession continues to seek cross-border practice privileges for CPAs, I want to update you on its progress to promote adoption of uniform, interstate mobility legislation, arguably the most important current issue in the profession. My hope is that the more informed you are about this critical issue, the more opportunity you will have to advocate on behalf of the profession and the public interest. Nationally, the profession made significant progress on the mobility issue in 2007. According to the AICPA, this significant activity was a result of the collaborative efforts among the National Association of State Boards of Accountancy (NASBA), state societies, state boards of accountancy, the Accountants Coalition and the AICPA. As of January 2008, 11 states have enacted mobility legislation, seven states have legislation currently pending, and 20 states anticipate legislative activity in 2008. Ten states (including North Dakota) are expected to look at this legislation in 2009. Practice mobility is the ability of a CPA to gain a practice privilege outside of their state without getting an additional license. This mobility is important because the electronic age and business realities make conducting business across state lines an everyday occurrence. Both the AICPA and NASBA have analyzed the current system for gaining practice privileges across state lines and have concluded it does not work. They see the current system, with each state having its own rules, regulations, and requirements to allow out-of-state CPAs to provide services in that state, as a patchwork system that is inefficient and increasingly difficult to navigate. Compliance and enforcement of the current system is almost impossible, with multiple cumbersome processes and disparities in requirements. Lack of a uniform system adversely affects CPA firms of all sizes, and is a significant barrier to consumer choice. Uniform adoption of the interstate mobility legislation will create a process similar to the nation’s driver license system and will provide CPAs with mobility while retaining and strengthening state accountancy boards’ ability to protect the public interest. State boards of accountancy will gain automatic jurisdiction over all CPAs practicing in their state, enabling states to discipline out-of-state licensees, whether or not they are registered or licensed in the state. The AICPA and NASBA jointly wrote the uniform, interstate mobility legislation and have strongly supported it as the best path to national uniform mobility and enhanced public protection. Both consumers and CPAs will benefit from the uniform, interstate mobility provisions. Implementation of the mobility provisions will allow consumers to receive timely services from the CPA best suited for the job, regardless of location, without the hindrances of unnecessary filings, forms, and increased costs that do not protect the public interest. Many businesses are located in multiple states and have compliance responsibilities in multiple states. A uniform process will give CPAs the flexibility to better serve these clients. In North Dakota, because of the importance of this mobility issue to the state’s licensed CPAs, our CPA Society is actively participating on the Law Review Task Force recently formed by the State Board of Accountancy. Mary Jo Richard and I are representing the CPA Society. At this time, to assure uniformity with other states, the task force is utilizing the assistance of the AICPA, NASBA, and the Accountants Coalition to create uniform mobility legislation in North Dakota. In summary, there is a critical need for North Dakota to adopt uniform, interstate mobility legislation that will allow licensed CPAs to provide services across state lines without unnecessary burdens, while retaining and strengthening the State Board of Accountancy’s ability to protect the public interest. If you have any questions or comments on this mobility issue, please contact me at Terry.Knoepfle@NDSU.edu or 701-231-7549.
January 2008 The success of the Society begins with its members. We are a “members” organization and have benefited from an active membership. Our members drive our committee activities, which are the life-blood of the Society. A significant percentage of our membership regularly attends the annual Convention and participates in our CPE offerings. The Board of Directors carries out the wishes of our membership. In that regard, I encourage each of you to let us know when there are things that we can improve upon. My email address is terry.knoepfle@ndsu.edu. A special thank you to each member who has agreed to serve as chair of a Society committee, namely: Stan Sandvik - Peer Review Our dedicated members and leaders notwithstanding, the Society could not have had the success we have enjoyed without an outstanding staff at the Society’s state office. Jim Abbott, our Executive Director, is a dedicated and tireless leader, and he has assembled a fine team (Norene, Sherre, Mandy, Darryl, Jae) in the office. I look forward to working with them. |
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