ACTEC Comments Concerning the Patentability of Tax Planning Methods 

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Daniel H. Markstein, III 
Maynard, Cooper Gale, P.C.
1901 6th Avenue North 
2400 AmSouth/Harbert Plaza 
Birmingham, Alabama 35203-2602 
Direct Dial: (205) 254-1043
E-mail: dmarkstein@maynardcooper.com
 
October 23, 2007
 
Honorable Max Baucus 
Chairman 
Committee on Finance 
U.S. Senate 
219 Dirksen Building 
Washington, DC 20510		 Honorable Charles Grassley 
Ranking Member 
Committee on Finance 
U.S. Senate 
219 Dirksen Building 
Washington, DC 20510
 
Honorable Charles B. Range1 
Chairman 
Committee on Ways and Means 
U.S. House of Representatives 
1102 Longworth House Office Building 
Washington, DC 20515		 Honorable Jim McCrery
Ranking Member
Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, DC 20515
 
Honorable Patrick J. Leahy 
Chairman 
Committee on the Judiciary
U.S. Senate 
224 Dirksen Building 
Washington, DC 205l0		 Honorable Arlen Specter 
Ranking Member 
Committee on the Judiciary 
U.S. Senate 
224 Dirksen Building 
Washington, DC 20510
 
Honorable John Conyers, Jr. 
Chairman 
Committee on the Judiciary 
U.S. House of Representatives 
2138 Rayburn House Office Building 
Washington, D.C. 20515		 Honorable Lamar S. Smith 
Ranking Member 
Committee on the Judiciary 
U.S. House of Representatives 
2138 Rayburn House Office Building 
Washington, DC 20515
 
Honorable Howard Berman 
Chairman
Subcommittee on Courts, the Internet and Intellectual Property
Committee on the Judiciary 
U.S. House of Representatives 
2138 Rayburn House Office Building 
Washington, DC 20515		 Honorable Howard Coble 
Ranking Member 
Subcommittee on Courts, the Internet and Intellectual Property 
Committee on the Judiciary 
U.S. House of Representatives 
2138 Rayburn House Office Building 
Washington, DC 20515
 
Re: Patentability of Tax Planning Methods
 
Gentlemen:
 
I address you in my capacity as the President of The American College of Trust and Estate Counsel (the "College"), a professional association of more than 2,500 lawyers fiom throughout the United States. Members of the College are elected to membership by their peers on the basis of professional reputation and abiIity in the fields of trusts and estates law and on the basis of having made substantial contributions to these areas of the law through lecturing, writing, teaching, and bar association activities. I am writing on behalf of the College in support of your efforts to find a legislative solution to the problem of patenting tax planning methods. We believe that the solution is to prohibit the issuance of such patents.
 
The College is concerned about the negative impact that the patentability of tax planning methods is having on taxpayers and our system of taxation in general.* From our experience as estate planning professionals, we have found that patents for tax planning methods in the area of federal estate and gift taxation are prohibiting clients fiom using congressionally authorized tax planning methods. We also believe that if patents for tax planning methods are not prohibited by legislation, these types of patents will in all likelihood expand and create problems for a much larger number of taxpayers.
 
The College applauds the House of Representatives for including in the passage of H. R. 1908, the Patent Modernization Act of 2007, the amendment offered by Representatives Boucher and Goodlatte making tax planning methods unpatentable. We encourage the Senate to pass similar legislation. Although the Internal Revenue Service recently issued proposed regulations making transactions that utilize patented strategies reportable transactions (similar to tax shelters) under Internal Revenue Code sections6011 and 6111, we do not believe that these rules will be sufficient to address this problem. A legislative remedy is the only way to ensure that every taxpayer may use congressionally authorized techniques to reduce the taxpayer's tax burden.
 
Until 2003, few estate planning advisers considered patents when advising clients about estate planning. That view changed in 2003 when an individual was awarded a patent for an estate planning technique that the patent holder called a "SOGRAT" ( Patent No. 6,567,790, Establishing and Managing Grantor Retained Annuity Trusts Funded by Nonqualified Stock Options). According to the patent, a SOGRAT involves a grantor retained annuity trust (commonly called a "GRAT") funded with nonqualified stock options. When word of this patent spread through the estate planning community, most estate planning professionals were shocked to learn that it was possible to patent a common estate planning technique used in connection with a specific asset, the purpose of which is to allow taxpayers to minimize their federal estate and gift tax liability, particularly a technique (such as a GRAT) authorized by regulations promulgated by the Treasury Department and approved in many Internal Revenue Service rulings.
 
On January 6,2006, the SOGRAT patent holder filed suit in the United States District Court in Connecticut for infiingement of the SOGRAT patent. The lawsuit was settled earlier this year with a stipulated determination as to the validity of the SOGRAT patent. As a result, taxpayers cannot use a GRAT funded with non-qualified stock options without facing the possibility of a suit for patent infiingement unless the taxpayer obtains the consent of the patent holder notwithstand'ig that Congress has authorized the use of a GUT. Congress should not allow patents to be used to prevent a taxpayer fiom using congressionally authorized methods to reduce the taxpayer's tax burden.
 
The College supports legislation to prohibit the patenting of tax planning strategies so that taxpayers may use legitimate tax reduction methods to satisfy their obligations to pay taxes without concern that they may become liable for infringement of a tax strategy patent.
 
  Very truly yours.

Daniel H. Markstein, III
President
 

cc:    Honorable Rick Boucher
U.S. House of Representatives
2187 Rayburn House Office Building
Washington, DC 205 15

 Honorable Erie Solomon
Assistant Treasury Secretary for Tax Policy
Department of the Treasury
1500 Pennsylvania Ave., N. W.
Room 1318T
Washington, DC 20220
 
Honorable Bob Goodlatte 
U.S. House of Representatives 
2240 Rayburn House Office Building 
Washington, DC 20515		 ACTEC Executive Committee 
Gerry A. Vogt, Executive Director
 
[*] As a result of the College's concern, the College has taken the position that tax planning strategies should not be patented. See Statement of Dennis I. Belher, Testimony Before the Subcommittee on Select Revenue Measures of the House Committee on Ways and Means, July 13, 2006.