by Kenneth Schortgen, The Daily Economist:

One of the most confusing things about the rise of cryptocurrencies is that most countries at the present time are implementing different rules and regulations regarding their ownership, taxation, and even definition. For example, the country of Japan has gone full bore into cryptocurrencies, even passing laws that legitimize Bitcoin as a medium of exchange while also removing any tax obligations on its purchase or use. Yet over in the U.S., a court ruling calling Bitcoin a security is the current standard, and means that transactions in the cryptocurrency are to be designated as property, and subject to capital gains taxes.

With this in mind there has been up until now an inherent fear that the U.S. government would use its taxing arm as a way to both dissuade Americans from getting into cryptocurrencies, and to limit their use in commerce by taxing individuals for each and every transaction. But a new announcement on July 6 suddenly has the IRS backing down at least for the time being, and is scaling back their ongoing tax investigation into individuals who have bought, traded, or sold Bitcoin on exchanges and in the economy.

The Internal Revenue Service suggested it will scale back a sweeping probe of more than a million customer accounts at the popular digital currency exchange Coinbase, saying it will no longer seek password and security settings for the accounts.

The concession came during a legal skirmish last week between the IRS and anonymous bitcoin buyers at Coinbase, who are asking for the right to intervene in the case.

“DOJ trial attorney Amy Matchison said at a court hearing before U.S. Magistrate Judge Jacqueline Scott Corley Thursday that the IRS has been in talks with Coinbase about narrowing its request to only items the agency would need to look for unreported income,” reported The Recorder, a legal site that reported on the hearing.

The controversy began last year when the IRS demanded to see all of Coinbase’s customer account activity from 2013 to 2015—a time when bitcoin’s value soared from $13 to over $1,100 (it is currently worth around $2600). The agency has stated that only 802 people declared gains or losses related to bitcoin in 2015. – Fortune

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