William Brink
For the summer of 2022, I was grateful to have received a Department of Accountancy Summer Research Grant. I utilized this grant to develop a new research project related to how recent legislation related to crypto transaction reporting to the Internal Revenue Service to begin in 2023, impacts investor behavior. Prior to this legislation, crypto transactions resulting in gains or losses were only self-reported to the IRS even though they represent fully taxable events. Starting in 2023, crypto brokerage firms will be required to report these transactions to the IRS similar to how stock sales are reported.
Over the summer, I was able to work with a colleague to develop this study. We were able to collect data for the first study in a series of experiments. The results from experiment 1 show that once taxpayers/investors are aware of the reporting change to take effect in the future, they are more likely to sell off their investments before the change is enacted. Further the results show that the sell-off of crypto assets before the change is enacted appears to be because taxpayers and investors would like to maintain the opportunity to not report their crypto transactions honestly to the IRS. That is, tax evasion appears to increase in the current year once a future reporting requirement is enacted. Further the results of our study suggest that the enactment of reporting requirements will drive crypto investors to “black market exchanges” who will not report transactions to the IRS. This proposition will be the focus of the second experiment to be ran. The results of this study will ultimately have significant impact on policy and contribute strongly to practical applications of academic theory.