Haozheng Jiang (J.D. 2026, St. Louis) & Henry Ordower (St. Louis), Cryptocurrency Public Key Reporting: Using Embedded Technology to Aid Tax Compliance, 185 Tax Notes Fed. 2119 (Dec. 16, 2024):

This report proposes that U.S. taxpayers report each blockchain public key they control and associate it with their taxpayer identification numbers or with the TINs of the beneficial owners of the public keys and the underlying cryptocurrency positions. Public key disclosure and association will enable the IRS to develop the capability to match public blockchain transactions with the U.S. taxpayers engaged in them and thereby counteract the anonymity or, more accurately, pseudonymity of cryptocurrency. This reporting would (1) supplement the contentious and incomplete existing third-party reporting of cryptocurrency transactions involving U.S. taxpayers; (2) diminish the perceived competitive disadvantage that third-party reporting places on hosting services; (3) limit demands for legislation requiring the marking to market of cryptocurrency transactions or outlawing cryptocurrency unless governing software automatically collects owner data and reports it to governmental authorities; and (4) facilitate the determination and collection of income tax from taxpayers who invest or transact in cryptocurrencies.

This report begins by reviewing the scope, nature, and operation of cryptocurrency that has given it status as a reliable, secure asset free from the constraints, vulnerabilities, and third-party fees of the traditional, formal financial system and contributed to its growth primarily as an investment product and secondarily as regular means of exchange. It then turns to the rules for income taxation of transactions in cryptocurrency and positions in cryptocurrency, against the backdrop of the general rules governing the taxation of personal property. The report focuses on the problem of tax reporting gaps common to a variety of opaque and semi-opaque property exchanges, which have enabled many U.S. taxpayers to evade their obligation to report their income from all sources annually. Looking for a solution, it examines public key reporting with blockchain’s embedded technology as a way to collect taxpayer information. This would support accurate tax reporting and prevent understatements of tax liability, which have led to third-party reporting obligations being extended to transactions in cryptocurrency. As detailed below, the reporting proposal would use the underlying public characteristics of the distributed ledger technology on which cryptocurrency depends and also rebut privacy objections to mandatory public key reporting.

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