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White House Says Lazear Patent Application Presents No Conflict of Interest

Posted on September 14, 2007 by Dustin Stamper
Document originally published in Tax Notes Today
on September 14, 2007.

The White House defended its top economic adviser Edward Lazear on September 13, following a Tax Analysts report that revealed he was one of two inventors listed on a recent patent application for a method to minimize corporate tax bills.

The White House originally did not return Tax Analysts' calls seeking comment, but White House spokesman Tony Fratto told Tax Analysts after the story appeared that Lazear stood to gain nothing from the patent "and would not and could not receive royalties" if the patent is approved.

The patent application lists Lazear as one of two inventors and was filed in October 2006, 10 months after President Bush tapped him to serve as chair of the Council of Economic Advisers. Tax software company Liquid Engines has claimed ownership of the patent application, although it is not listed in the application as the assignee.

Fratto said Lazear was listed as an inventor only because Lazear designed an algorithm used in the tax method long before he joined the White House. According to Fratto, the algorithm was not originally created to be used in any tax strategy, and Lazear had no part in any decision to use it in a tax patent.

But Fratto acknowledged that Lazear had to sign a legal document that allowed Liquid Engines to pursue the patent and that White House counsel was consulted before Lazear consented.

"He could have been a jerk and they would have been stuck," Fratto said.

Lazear is also listed as the inventor on a Liquid Engines tax strategy patent application filed in December 2002, when he was still with the company.

Lazear helped found Liquid Engines in March 2000. The company bills itself on its Web site as a cash flow and tax management software company, offering products that it promises will "more quickly identify exposures" and "evaluate tax saving ideas."

Fratto said Lazear abandoned any interest in the company when he was named to the president's tax reform panel in January 2005, and said his name on any patents creates no conflict of interest.

The 2006 patent application outlines a detailed computer program for analyzing a corporation's structure and finding ways to shuffle, split, or merge its divisions and subsidiaries to achieve tax savings. The background section of the application says the program is intended to analyze the state tax consequences of the "large number of alternative ways to set up an entity structure" so as not to "forfeit potential tax savings."

Treasury, the IRS, Congress, and most recently the White House have all said that a recent surge in applications for strategy patents is harming the tax system.