1. If I choose to convert back to US dollars, this is considered a taxable event.
Yes. Any time you convert from capital property to currency, it's a tax event and you have to account for gains.
2.1. First off, does that mean even if my balance was 0... I would have to check both of these options before i continue? I have around $5.50 in my circle usd account at the moment.
Depends on if you want a USD balance or a BTC balance.
2.2 Even if my account was in bitcoin currency and not USD, wouldn't that mean when i sell the bitcoins to circle and get credited with an ACH transfer, well that is considered a taxable event?
If you did an ACH where your coins got converted to USD, then yes.
3. Are transfers from circle or coinbase to bank account reported to the irs?
No. They are no reporting mechanism at the moment. If they did, you would get a form, as you do with a bank or broker. However, they will report your account for any suspicious activity like all banks.
4. The reason why i ask this is b/c i wanted to know does me checking that option
Simply put, if you choose to have a USD account, any transfers you make in are tax events and capital gains are possible. Any transfers out is in effective purchasing of new coins, and so sets their new cost basis (e.g. date and price).
If you have a BTC account, there an no tax implications except when you sell those coins.
5. I'm assuming whether its checked or not, well any time you go from coinbase or circle to your bank acct, you are selling bitcoin and thus whether you checked anything or didn't have option to check this like on circle, it would be the same thing?
Coinbase doesn't hold USD balances in their BTC wallets, it's BTC. However, they do have a separate USD wallet, where you would be selling and so capital gains apply.