As for cash and cocaine, you track the items that it's being spent on.
If you buy a burger with bitcoin, then, well, noone cares if you didn't pay taxes on that; but if you buy a car or a mansion with bitcoin (or bitcoin-derived resources), then the item is visible, and they can audit your income and purchases to trace the source of that money (and untraceable source = your problem).
If you buy a burger with bitcoin, then, well, noone cares if you didn't pay taxes on that; but if you buy a car or a mansion with bitcoin (or bitcoin-derived resources), then the item is visible, and they can audit your income and purchases to trace the source of that money (and untraceable source = your problem).