Internal Revenue Service (IRS) Can Utilize Blockchain Technology Benefits
Is That Possible? Blockchain Technology Can Save the IRS
As reported by Forbes, the Internal Revenue Service (IRS) will have to spend $291 million dollars in order to update 140 computer systems that will help the agency to implement the new tax law. These technology costs and other back-office operations will be consuming more than 90% of the funds that the Congress is giving the IRS.
Blockchain Technology To Reduce Costs
For the IRS it is very expensive to keep updated with the new technology required to run the new tax regulations. In the past, technology (internet) was able to help it reduce costs, and this time, it seems that blockchain could be the new implementation.
Blockchain technology is a digital ledger that is based in some principles including trust, security, speed and cost efficiency. The blockchain is a ledger that records all the transactions that take place in the network, which can be privately or publicly registered.
Bitcoin and other virtual currencies in the market use blockchain technology to register their transactions, like if they were using a spreadsheet or ledger. In this way, it is possible to have functioning a peer-to-peer network which can process verified and approved transactions.
Surprisingly, distributed ledger technology can revolutionize the way in which the data is analyzed and stored by the IRS. In this way, the IRS could lower costs and increase security. Moreover, it can enhance the speed in which it accesses and reviews taxpayer data.
During the last year, over $600 billion dollars were rolled over from 401(k) plans to IRAs. If a business pays pays an independent contractor over $600 dollars during a taxable year, the IRS could wait up to an year to receive the data on the IRS Form 1099.
Moreover, if a taxpayer mails a check to the IRS, the agency could even wait between three to seven days for the transaction to settle. At the same time, the IRS reported 242,000 cases of taxpayer identity.theft reports.
If a private blockchain is implemented by the IRS it can change the speed, improve the security and reduce costs. This could make the IRS a more cost effective and efficient regulator, which is very important. Of course, we are not talking about a public blockchain like Bitcoin, but instead, about something like what other institutions like banks are implementing – a private blockchain.
This would allow a bank or institution to transfer 401(k) plan funds to an IRA. The transaction can be verified and reported by the parties on a blockchain and the IRS would have immediate access to it. The same can happen with other forms, including the Form 1099.
Additionally, the IRS would have more security against taxpayers identity theft because of the implementation of cryptography.
These are just some of the huge benefits that blockchain technology could have on the IRS. It could help it save costs, allow for real time ta related data analysis, reduce fraud, and help agents manage audits. It would be important for the Congress to have advisors that would inform about how blockchain technology could help agencies be much more efficient and secure.