That’s the key to answering your question. Buying and selling a cryptocurrency is the same as doing a forex trade as far as the IRS is concerned: you have to report your gain or loss when you convert back to USD. Same goes for someone paying you in a cryptocurrency (or EUR or GPB or what-have-you) vs. USD: the IRS expects you to report that income at the value in USD on the date in question as well as reporting gains or losses when you cash out in USD. It’s a big accounting hassle, especially since there are no tax treaties with the decentralised “issuers” of cryptocurrencies.
The cryptocurrency Libertarians were under the impression that BTC and such were too magical to be discovered by the IRS, but exchanges like Coinbase act as holes in that delusion – if the exchange is anywhere near trustworthy and reputable it’s going to be subject to regulation or oversight. The only way to avoid getting caught is not to use an exchange at all (or at least keep the balance under $20k) and do all your transactions with others in cryptocurrency on a peer-to-peer basis, which carries its own risks and hassles.
