If you obtained stock prior to 2011, and sold it, the IRS has no idea what the cost basis is, so this is voluntarily reported by the filer (and this will determine your capital gains). Of course, if you fudge this number to the point it is noticeable, you're looking at between a 20% and 100% penalty, or possible civil fraud.
Bitcoin is really no different. It doesn't matter if there's no easy way for the government to keep track of every taxpayer's BTC holdings, because if the IRS determines at a later time that you have provided inaccurate information, you're in trouble. Maybe one day exchanges will provide 1099s for sales, but until then, it's the same rules as any other unreported income.
You don't have to use any particular approach, you can choose to match up purchases and shares however you wish (FIFO, LIFO, per-sale tax optimization). You just need to make sure you track what you're buying and selling, so that every purchase and sale are matched.
As of 2011, your broker does this for you -- and different brokers offer different levels of sophistication in their tracking. Some only offer FIFO and LIFO, others will do more complex optimizations for you.
For purchases before 2011, you need to save info on your purchases lot-by-lot and match them up yourself. This has screwed me several times, when I can't remember when I bought a certain stock and can't put my hands on the appropriate statements at tax time. Royal pain.
If a user has a reasonable knowledge of bitcoin, they can't. They can monitor it only when it hits the existing financial structure. If you don't cross through that, they (in effect / in most cases / under normal circumstances) can't really see it.
Well, since the ledger is public, if you manage your coins yourself, all they need to know are the address(es) that are yours. They can look up what's in them with a copy of the ledger.
If your bitcoins are in an aggregated account like Coinbase (or the now-dead Mt. Gox), they'd probably put in bank-like reporting requirements that make the bank tell the IRS how much money you have if you have enough of it.
Umm, just as with any other expensive property - they ask you to declare them; and if you conveniently forget to declare it, but at some time later (say, after 5 years) they somehow find that out, then you go to jail.
Are you sure that you can hide that stash (and all purchases/deals made from it) permanently?
Thank you. I haven't researched the subject. I still think you will be better of dealing with German tax authorities than with IRS. I suspect there are and will be some European countries that treat bitcoins with more leniency.
