Court Rules IRS Can Seek Information on Bitcoin Customers

Even with the web links, that often doesn't work with WSJ any more with how they cookie; so I'm very supportive of non-paywalled links as a preference.

The longer and less useful answer is that it depends heavily on circumstances. Two relevant ones are "What sort of income do you have here?" and "How much are we talking about?"

If we assume the answers are "You have capital gains because you happened to purchase some Bitcoin, they appreciated, and you sold them, but you weren't conceivably operating a business while doing this" and "Enough money to matter but not enough that your failure to get better advice was clearly negligent" then your resolution is going to be fairly simple. Your CPA will calculate how much money you owe, file a 1040-X (amended return) for the years at issue, and say "On routine review of a prior year tax filing we found that we inadvertently understated income. We're amending the return as appropriate, and have remitted additional tax. We request an abatement for penalties for tax underpayment on the grounds that IRS guidance at the time was unclear and we're coming in voluntarily before you asked us to." You'd possibly get the abatement of penalties; you're likely to pay very modestly more than you would have if you had been more diligent about your obligations, because they don't frequently waive interest.

This is the "middle class Americans screw up their taxes all the time; we like to encourage voluntary compliance" answer. If you're talking about mountains of money, on the other hand... expect rather less leniency. Other things that increase your risk: any hint of other-than-tax illegality around the business ("I underpaid on the capital gains I inadvertently generated in my drug smuggling business -- sorry about that, really didn't set up to be a currency speculator, I'm simply an honest drug smuggler") or the Bitcoins being used in a manner which was clearly straight-up tax fraud, like the prosecuted cases where someone's company paid a Bitcoin exchange $X00,000 for "technology services" and expensed it, took the Bitcoin over to Gox, cashed out, and then repatriated the money. (The Bitcoin here are just a red herring; this is a conspiracy to hide $X00,000 in income from the government. They take a dim view of that.)

The barrier to entry is literally clicking or tapping twice.

Quoting in full since its among the most misunderstood yet important distinctions in tax:

http://www.irs.gov/irm/part9/irm_09-001-003.html

9.1.3.3.2.1 (05-15-2008)

26 USC §7201 – Avoidance Distinguished from Evasion

1. Avoidance of taxes is not a criminal offense. Any attempt to reduce, avoid, minimize, or alleviate taxes by legitimate means is permissible. The distinction between avoidance and evasion is fine, yet definite. One who avoids tax does not conceal or misrepresent. He/she shapes events to reduce or eliminate tax liability and, upon the happening of the events, makes a complete disclosure. Evasion, on the other hand, involves deceit, subterfuge, camouflage, concealment, some attempt to color or obscure events or to make things seem other than they are.