By: Orly Mazur*
Abstract
Experts predict that the use of smart contracts and other applications of blockchain technology could revolutionize the manner in which we do business. Blockchain technology promises the elimination of middlemen, increased trust and transparency, and improved access to shared information and records. Thus, it is no surprise that companies and entrepreneurs are developing blockchain solutions for an array of markets, ranging from real estate to health care. But can this new technology revolutionize tax administration?
This Article is the first to consider blockchain technology’s role in addressing the shortcomings of our current administration system— namely, a large tax gap, high compliance and administrative costs, and operational inefficiencies. To mitigate these problems, this Article introduces two innovative uses of blockchain technology in the tax space: a blockchain-based platform for information returns and a blockchain-based platform for digital invoices. Implementing these blockchain-based platforms for tax administration presents significant opportunities to digitalize and automate certain tax processes, improve tax compliance and enforcement, and minimize many inefficiencies currently involved in the tax administration process.
This Article also considers the broader implications of using technology to improve tax administration by demonstrating that any blockchain tax initiative is unlikely to make meaningful improvements to tax processes without additional government action. It, therefore, sets forth normative steps for policymakers to take in supporting the use of blockchain and other technologies in the tax space. By doing so, this Article promotes a proactive approach to exploring and understanding blockchain technology’s benefits, limitations, and implications to ultimately place the government in the best position to modernize our tax administration system.
*Associate Professor of Law, SMU Dedman School of Law. I am grateful to Dr. Craig Wright, Richard Ainsworth, Hillel Bavli, Miranda Fleischer, Leandra Lederman, Len Mazur, Carla Reyes, Meghan Ryan, and Sharon Skolnick for their helpful comments; to the participants of the Tax Economists Forum, the University of San Diego School of Law’s Tax Law Speaker Series, the 2021 Law and Society Annual Meeting, the Texas Tax Faculty Workshop, the Maurer School of Law’s Tax Policy Colloquium, and the NTA’s 112th Annual Conference on Taxation for insightful comments and discussions; to SMU’s law librarian, Timothy Gallina, for his invaluable research assistance; and to the Penn State Law Review editors for their editorial suggestions. Finally, I would also like to acknowledge and thank the Emily Parker Endowed Faculty Research Fund for its generous support of this research.