IRS proposes adding patented transactions to list of reportable transactions.

• Author: Nevius, Alistair M.

In September 2007, the Service issued proposed regulations that would add patentable transactions to the categories of reportable transactions under Regs. Sec. 1.6011-4, which requires taxpayers who engage in certain reportable transactions to file a disclosure statement using Form 8886, Reportable Transaction Disclosure Statement.

The U.S. Patent Office has recently started issuing patents for tax strategies, including some for strategies that were previously described in IRS rulings. These patents have generated much attention and controversy in recent months. (See Ransome and Sherr, "Patenting Tax Ideas" The Tax Adviser (August 2007), p. 456.) At the time of this writing, the House has passed a bill that would prohibit the patenting of tax strategies (H.R. 1908).

The Service is concerned that patented tax strategies are potentially abusive; it is also concerned that taxpayers will think that because a strategy is patented it has been approved by the IRS.

In general, the proposed rules would require disclosure of deals if taxpayers paid for the legal right to use patented tax strategies or claimed tax benefits stemming from the use of those strategies...