Tax Compliance in a Decentralizing Economy

Tax compliance in the United States has long relied on information from centralized intermediaries–the financial institutions,employers, and brokers that help ensure income is reported and taxes are paid. Yet while the IRS remains tied to these centralized entities,consumers and businesses are not. New technologies, such as sharing economy platforms (companies such as Airbnb, Uber, and Instacart)and the blockchain (the platform on which various cryptocurrencies are based) are providing new, decentralized options for exchanging goods and services. Without legislative and agency intervention, these technologies pose a critical threat to the reporting system underlying domestic and international tax compliance. Until now, legal academia has paid scant attention to the extent to which U.S. tax compliance relies on centralized intermediaries as information reporters. Prior scholarship has instead focused on describing existing information reporting protocols and the characteristics of successful reporters. This Article moves further,demonstrating that both domestic and international tax compliance cannot function without these centralized intermediaries. Next, the Article argues that the potential decentralization caused by new technologies should not be neglected, and proposes a series of legislative reforms so that Congress and the IRS can act prospectively, rather than retrospectively, to minimize the future threat to U.S. tax compliance.