Not only when they're exchanged for regular currency, but for anything else conspicuous. The IRS regularly catches people underreporting cash earnings by notici

Not only when they're exchanged for regular currency, but for anything else conspicuous. The IRS regularly catches people underreporting cash earnings by noticing they're living way above their official means: someone bought two cars and a vacation home despite no significant source of income reported. If you buy the cars and the vacation home with bitcoin, it'll be the same deal. To avoid scrutiny, you'd have to either not spend the bitcoin at all, or only buy inconspicuous things with it, perhaps intangible things like streaming-video subscriptions and videogames.