IRS Might Limit 'Highly Intrusive' Bitcoin Audit Of Coinbase Users

The Internal Revenue Service may scale back a controversial audit of bitcoin users, which several Republican congressmen called “overly broad, extremely burdensome, and highly intrusive” in a stern letter to the tax authority. Fortune reported the IRS demanded to see all the customer account activity on Coinbase, one of the world’s leading cryptocurrency platforms, from 2013 to 2015.

This sweeping audit of this bitcoin exchange surprised legal experts, who widely criticized the order to release customer data. Now, the IRS may narrow the demands a little bit, no longer requiring all password and security settings for the 500,000 users who swapped bitcoin before 2016.

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According to the legal site The Recorder, on Thursday Department of Justice trial attorney Amy Matchison spoke at a court hearing about talks between the IRS and Coinbase. Matchison reportedly told U.S. Magistrate Judge Jacqueline Scott Corley these conversations are about limiting the IRS audit request to only items the agency would need to check for unreported income.

Coinbase declined to comment on the ongoing case. However, Democrat Sen. David Schweikert and Republican Sen. Jared Polis, both founders of the Congressional Blockchain Caucus, issued yet another letter to the IRS.

This second letter urged the IRS to engage with blockchain experts and virtual currency exchanges to get a better understanding of the technology. Cryptocurrency markets can provide all kinds of records related to income and spending without violating the privacy of personal profiles.

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Matthew J. O'Toole, an attorney who contributed to the Delaware Blockchain Initiative, told International Business Times his recommendations with the DBI included some “rules of the road” for blockchain stock market records, including the names of the stockholders and the number of shares they held, among other pieces of customer data. There are plenty of precedents for reporting digital assets, like stocks, to tax authorities without requiring email information and passwords.

According to the CPA Journal, there is still debate among tax authorities about whether cryptocurrency counts as payment or property investments. Something O’Toole said he admired about the DBI approach was it encouraged regulators to learn how blockchain works and “embrace the technology, not squelch it.” Many critics have accused U.S. government officials of “ stifling ” the cryptocurrency industry with misguided demands and restrictions.

There is still much to be learned about bitcoin and tokens of its ilk before the IRS will be able to legally justify personal information requests as part of a third-party audit.