DEATH TO PATENTS

One of the more ridiculous notions out there is that tax planning techniques can be patented. Whether they can be patented as a legal matter is presently a disputed issue - the layman has to wonder, however, how someone can "own" a series of financial, trust, or asset transactions that are designed to achieve tax benefits. The uncertainty hasn't stopped some attorneys and other professionals from seeking patent protection for techniques they claim to have invented.

A measure of sanity may soon be arriving. Last week, the House of Representatives enacted legislation that, at least on a prospective basis, declares that tax planning techniques cannot be patented. Hopefully, this will pass into law.

The current version of the law does not disturb prior patents - although it does say that it should not be interpreted as to validate prior tax planning patents.

H.R.1908, the Patent Reform Act of 2007

DECLINE IN NUMBER OF FILED ESTATE TAX RETURNS

According to the Summer 2007 of the IRS Statistics of Income, a significant reduction in federal estate tax returns has occurred in the new millennium.

The total number of estate tax returns filed fell by 58 percent to about 45,000 in 2005 from about 108,000 in 2001. The total amount of assets represented by these returns also fell but by far less. Total gross estate (assets) on these returns fell by 14 percent to $185 billion in 2005 from $216 billion in 2001. Meanwhile, net estate taxes reported on these returns declined by even less, only 8 percent.

The reduction in returns filed is due to the steady increase in the unified credit equivalent amount allowed for federal estate taxes from $600,000 to $1.5 million for decedents dying in 2005. Since estates with less than the available credit equivalent in assets do not need to file, increases in the credit result in few returns.

It is likely that this trend will continue as the exemption continues to grow (through 2009). The current credit equivalent amount is $2 million.

TOURNAMENT WINNINGS TO BE WITHHELD AGAINST

The IRS trusts tournament poker winners to pay income taxes on their winnings as much as it trusts other gamblers. That is, it doesn't trust them at all.

In a recently issued Revenue Procedure, the IRS is requiring tournament operators to withhold 25% of poker winnings if the proceeds are more than $5,000 over the entrance fee. Information reporting to the IRS about such payments are also required. Rev. Proc. 2007-57, 2007-36 IRB 547.

Gamblers shouldn't feel slighted –Congress really doesn't trust the average U.S. wage earner either, per its continued retention of the wage withholding system. However, some believe that the wage withholding system is not based on a lack of trust but on a belief that the U.S. taxpayer will be more accepting of higher income tax rates if their employers pay the taxes( instead of the wage earner writing a check out of his or her own bank account).

This has not been a good tax year for tournament poker players. Earlier this year, the Tax Court held that tournament poker is a wagering activity, losses from which are subject to the limits of deduction under Code Section 165(g). Under Section 165(g), such losses can only be used to offset winnings – losses in excess of winnings are disallowed. Tschetschot, TC Memo 2007-38.