Originally Posted by
mrpapageorgio
The main question the IRS would be asking is "Where did you get the bitcoin from?" If he was using it purely as a means of exchange, then he would have to declare how he got the Bitcoin. (I.e. Payment for gambling winnings). So say he deposited $100 and withdrew $1000, he would have to declare $900 in profit as gambling winnings. If he held onto the bitcoin, then if it appreciated in value, he would also declare the amount above $1k as capital gains, or if it depreciated, could declare losses.