Technically speaking, any profits would be capital gains and thus are reportable. Whether it's taxable or not depends on whether sufficient deductions or credits are available in your situation to offset the gains. $1 of gain is still a gain. Now, having said that, the IRS is likely looking for worse offenders in general.
There is a certain complexity here when you're gambling with BTC and that is your main source of the commodity. Almost all my BTC come from poker in one way or another, or through some other form of gambling. The tax law for gambling, especially in the United States, is basically nutty. It requires accounting for every session, and allows deductions for losing sessions, but those also must be tracked and you have to do enough gambling that it exceeds the standard deduction. You also have to itemize deductions.
The taxable event in this case is actually winning the money at the table. It can't be dodged by simply keeping the money (denominated in dollars) as casino chips and putting them in a safe deposit box. In fact, the IRS has often gone after gamblers and the casinos generally cooperate in emptying out such safe deposit boxes to cash the chips. If the gambler can't then document session losses and gains, tough titty.
However, BTC and the sale of BTC (especially when purchased with fiat) is a lot like the kind of event that triggers short-term capital gains taxes, particularly if you only hold the BTC for a year or less. So what about the situation where you played a lot of Bitcoin poker when it was practically play money, you now have a bunch, and you cash out some when it hits $250?
Capital gains is generally applied to when a
purchased asset appreciates in value. To some extent, even mining constitutes a capital investment, but suppose you just got it for free by playing poker freerolls, then letting that money ride until it turned into something real, then held it for a while?
The fact is, the IRS has neither sane nor sensible regulations on these policies, and the statutory law is even further behind the times. If the IRS does what the IRS does in any other case, it will adopt whatever position enables it to gouge the most money from you.
I know, some will say fuck the IRS, just do whatever, evade taxes, whatever. Can't do that. I'm in a profession where getting in IRS trouble gets you kicked out of the profession. Won't work for me. When I was making money on poker to the point it exceeded the income from my "real" job, I paid every damn penny of taxes and had my paperwork (well databases) in order to withstand any possible audit.
However, the denominated in Bitcoin shit presents serious accounting and legal issues. I think anyone in that situation (including me) would benefit from professional advice in that area if the cost of the professional advice does not exceed the comparative benefit of having the advice. One guy (apparently an accountant) who posted in this thread, is probably qualified to give such advice, but frankly, I am in just as good a position to give advice to myself. The law is not established in this area, and it is dangerous ground.
Are there any other (mostly) law-abiding citizens out there who have established their own personal "best practices" in this area?
Remember, the law is not what makes sense when you read it in a book of statutes, or even the regulations, it is what some 80 year old guy decides while his bowels are acting up and he doesn't understand your argument.
damn IRS always wants to steal every penny it can. But I don't plan on ever selling off my bitcoins, even if they one day are worth a million dollars xD So this doesnt terribly bother me.