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Synopsis:  

Blockchain has become an attractive topic not only among techies, but also entrepreneurs, policymakers, and even laymen. A thriving body of literature discusses various legal issues related to blockchain, but it often mixes the discussion of blockchain with Bitcoin and other cryptocurrencies. However, cryptocurrencies and blockchain are not synonymous. Blockchain is a decentralized, immutable, peer-to-leer ledger technology, whereas cryptocurrencies are built on a blockchain. In other words, blockchain is the original, underlying technology of cryptocurrencies. Recently, not only the private sector—e.g., financial services, smart contracts, medical records, property records, supply chain—but also the public sector—e.g., defense, budget allocation, government approval chain, voting—have gone beyond the cryptocurrencies and have begun to utilize blockchain technology itself as a newly emerged data management system, appreciating its resilient and immutable features. Considering that more data is processed remotely and thus digitally in post COVID-19 era, the data management system built upon blockchain will gain stronger momentum.

However, none of the blockchain projects thus far have studied the tax sector specifically. This Article aims to extend such effort to tax administration. Specifically, this Article evaluates the feasibility of incorporating blockchain in tax administration and provides policymakers with criteria to consider and recommended designs of blockchain networks. Due to the inherent information gap between taxpayers and tax authorities, tax administration is closely linked with collecting and managing tax information. Because such tax information is often digital, blockchain may improve tax administration through its ability to deliver reliable, real-time information from many sources to a large audience. Features of blockchain technology, including trust built upon consensus protocol, immutability, and decentralization, can enhance efficiency and transparency of tax administration. Furthermore, a well- designed private or consortium blockchain system, which has evolved from the classic public blockchain, may effectively protect taxpayers' information. Potential areas that can be benefited from blockchain are 1) reporting obligation of the same information to multiple tax authorities and agencies (e.g., payroll tax, transfer pricing), 2) third-party reporting obligations (e.g., withholding tax), 3) transaction taxes (e.g., value added tax), and 4) information sharing among federal, state, and localities, and among multiple countries.

Finally, this Article proposes normative implications for policymakers deliberating blockchain initiatives for tax administration, such as timeline, standardization, integration with other systems, and limitations. Blockchain is in the limelight when it comes to dealing with information and records in the digital era and making good use of it would advance efficiency, transparency, data integrity, and network security. This Article proposes that, to be truly effective, blockchain initiatives in tax administration must be accompanied by legislation to regulate the role of government, control of tax information, and taxpayers' rights and privacy. 

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