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WASHINGTON � In her annual report to Congress, the National Taxpayer Advocate is urging Congress either to prohibit tax strategy patents or to limit liability for infringing them. “If Congress does not bar them, it should require the U.S. Patent & Trademark Office (PTO) to send any tax strategy patent applications to the IRS so that it can quickly address any abuse they may present and help the PTO identify obvious tax strategies that should not be eligible for patents,” wrote National Taxpayer Advocate Nina E. Olson. The Taxpayer Advocate Service is an independent organization within the IRS which helps taxpayers resolve problems and recommends changes that will prevent the problems. Tax strategy patents are a part of business method patents, which have been growing in number since 1998, when the concept was approved by a federal circuit court. In her report, Olson said these patents grant private citizens “monopolies” on the application of public tax laws. She identified four potential problems: • they may mislead taxpayers into believing the government has approved a patented tax strategy; • they may undermine congressionally-created tax incentives; • they may create conflicts of interests between tax advisors and their clients; • they may increase the cost of tax compliance and tax advice even if it is not covered by a tax strategy patent. Olson, who devoted 13 pages of her report to the issue, noted that in 1997, the PTO had issued only two patents under its tax strategy classification. But as of November 2007, the PTO website reflected 60 patents and another 101 published applications. Legislation was introduced last spring in the U.S. House � H.R. 2365 which would prohibit a civil action and certain civil remedies against taxpayers or tax practitioners for infringement of a patent for tax planning methods. The bill is in the House Judiciary Committee.

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