zkTax: A pragmatic way to support zero-knowledge tax disclosures

TL;DR

This work introduces a zero-knowledge tax disclosure system (zkTax) that allows individuals and organizations to make provable claims about select information in their tax returns without revealing additional information, which can be independently verified by third parties.

Abstract

Tax returns contain key financial information of interest to third parties: public officials are asked to share financial data for transparency, companies seek to assess the financial status of business partners, and individuals need to prove their income to landlords or to receive benefits. Tax returns also contain sensitive data such that sharing them in their entirety undermines privacy. We introduce a zero-knowledge tax disclosure system (zkTax) that allows individuals and organizations to make provable claims about select information in their tax returns without revealing additional information, which can be independently verified by third parties. The system consists of three distinct services that can be distributed: a tax authority provides tax documents signed with a public key; a Redact & Prove Service enables users to produce a redacted version of the tax documents with a zero-knowledge proof attesting the provenance of the redacted data; a Verify Service enables anyone to verify the proof. We implement a prototype with a user interface, compatible with U.S. tax forms, and demonstrate how this design could be implemented with minimal changes to existing tax infrastructure. Our system is designed to be extensible to other contexts and jurisdictions. This work provides a practical example of how distributed tools leveraging cryptography can enhance existing government or financial infrastructures, providing immediate transparency alongside privacy without system overhauls.

Figures (6)

• Figure 1: Diagram of the three services that compose the ZK tax disclosure system. (Left) An individual, Alice, retrieves tax data from a Trusted Tax Service (TTS), which signs the tax data with a signature that can be verified with a public key. (Middle) Alice brings the signed tax data to the Redact & Prove Service. The service allows her to select how tax data should be redacted and then generates a redacted version and proof that the original data was signed by the TTS. Alice can make the proof and redacted data public for anyone to then verify by using the Verify Service.
• Figure 2: ZK Tax system overview with data flows.
• Figure 3: Prototype mock TTS interface. Users can insert Form 1040 and the service returns the JSON representation of the data signed with the TTS key.
• Figure 4: Prototype Redact & Prove Service interface showing fields relevant to the example use case provided.
• Figure 5: Prototype Verify Service interface showing fields relevant to the example use case provided.