The Budget

Floor Speech

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Mr. GRASSLEY. Madam President, I understand there are questions about what the tax strategies portion of the bill does and who it impacts. So I want to take a few minutes to address those questions.

In simple terms, a tax strategy is any method for reducing, avoiding, or deferring tax liability based upon the tax law--including interpretations and applications of the Internal Revenue Code, regulations, and related guidance.

A tax strategy can be as simple as a plan to buy tax-exempt bonds or invest in an IRA to reduce your tax liability or as complex as some sort of sale-leaseback tax shelter involving multiple domestic and foreign corporations and partnerships.

A tax strategy patent, which is what we are talking about in this bill, is just that--a patent on a particular tax strategy.

Madam President, I ask unanimous consent to have printed in the Record an article from a publication called the Tax Adviser. This article provides some examples of tax strategies that should not be patented.

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Mr. GRASSLEY. Tax strategies are bad because they allow the tax law to be patented. A patent gives the holder the exclusive right to exclude others from using the patented invention. A tax strategy patent makes taxpayers choose between paying more than legally required in taxes or providing a windfall to a tax strategy patentholder by paying a royalty to comply with the tax law.

Tax strategy patents add another layer of complexity to the tax laws by requiring taxpayers or their advisers to conduct patent searches and exposing them to potential patent infringement lawsuits.

If a tax strategy patent is granted for a tax shelter designed to illegally evade taxes, the fact that a patent was granted may mislead unknowing taxpayers into believing the obvious: That the strategy is valid under the tax law when, in fact, it might not be.

Tax strategies are not like other inventions because everyone wants to pay less tax. Tax strategy patents are on the rise, which then means more and more legal tax strategies are unavailable or, obviously, more expensive for more and more taxpayers.

Madam President, I ask unanimous consent to have printed in the Record a letter. This letter, which is from a coalition of 15 consumer groups, including the umbrella group for public accountants, the Tax Justice Center, and the U.S. Public Interest Research Group, provides more information on why tax strategy patents are bad for taxpayers.

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Mr. GRASSLEY. Section 14 of the bill, which has been before the Senate for the last week or more, prevents patenting of tax law. It provides that a strategy that relies on the tax law to reduce, to avoid, or to defer tax liability cannot be novel or nonobvious.

So a strategy for reducing, avoiding, or deferring tax liability will be deemed insufficient to differentiate a claimed invention from the prior art for purposes of evaluating an invention under section 102 or section 103 of the bill that is before us. This ensures that taxpayers and their advisers will then be guaranteed equal access to the tax laws, and that is obviously the fair way to do it. It is the commonsense way to do it.

So I wish to be clear that tax preparation software is not a tax strategy. Senior policy and examination staff from the Patent and Trademark Office agree that such software is not a tax strategy.

I also have letters from H&R Block, KPMG LLP, and Grant Thornton that state that the underlying language does not impact their software patents. Again, I ask unanimous consent to have these letters printed in the Record.

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