A Patently Absurd Tax Avoidance Strategy

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Keen observers of the corporate tax-avoidance practiced by the biggest Fortune 500 companies know that these companies generally aren't ashamed of, or even bashful about, their practices. Rather, they see it as their fiduciary duty to use all available loopholes to reduce their tax liability. And to the extent that these loopholes are the creation of Congress rather than of creative accounting by tax professionals, they've got a point.

But when tax-avoidance strategies are brought to life entirely by the creative efforts of accounting experts looking for loopholes in the law, that's nothing to be proud of. Such loopholes generally only exist until Congress can get its act together and get rid of them. But as Floyd Norris documents in today's New York Times (read it here if you subscribe to NYT online), some companies-in an extraordinary display of chutzpah--are using an obscure 1998 federal appeals court ruling to patent their creative tax strategies. According to Norris, the Patent Office has actually issued 49 patents for corporate tax strategies, following the logic of a 1998 court ruling that business methods can be patented.

This is, of course, absurd. A basic test of a fair tax system is that its provisions treat similar taxpayers the same way. If a legitimate tax break is available to one company, its competitors should be allowed to seek the same tax breaks-- as long as they satisfy the legal requirements for the tax break. As Norris points out, allowing this precedent to stand could transform our tax laws in ways that anyone would recognize as [sorry, bad pun] patently unfair:
[I]f it is legal, the mind boggles at the possibilities. Could I get a patent on taking a deduction for dependents, so that every parent in America would have to pay a royalty to me to take advantage of the tax law passed by Congress?
Like the loopholes themselves, the ability to patent tax dodges is (one would hope) a short-lived phenomenon that will hopefully be reversed by the next Congress. But in the anti-tax environment fostered by our current political leaders, in which the IRS has been hamstrung in its enforcement efforts by budget cuts, seeking a monopoly on tax avoidance strategies is almost a logical next step.

Thank you for visiting Tax Justice Blog. CTJ and ITEP staff will soon retire this domain. But ITEP staff are still blogging! You can find the same level of insight and analysis and select Tax Justice Blog archives at our new blog, http://www.justtaxesblog.org/

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