Let's say you are a tax paying citizen, and have no wish to hide your earnings.  Let's also say that Bitcoins are not threatened by government, but are allowed to peacefully coexist.

Dealing with Bitcoins for tax purposes means that any profits you make from them are liable for capital gains tax.  However, that tax is only due at the moment you convert them back into your native currency.

I have two questions for those who know more about tax than I do:

• If I convert BTC to USD on Monday, then that same USD to BTC on Tuesday, is capital gains tax still due?  If it is, then would it be better to wrap all one's BTC transactions in a holding company, so that profit becomes the element that is taxed?
• If the answer to the first question is "no", then what stops me converting all my gross income to Bitcoins and declaring no net income?  I can then drip my Bitcoins back to native currency (if I even have to) as I need to and in this way use Bitcoins to smooth my tax bill over the lean years and fat years.
  

These are hypothetical, and probably based on a flawed understanding of taxation.  I have only the familiarity with taxation that your average non-investing citizen would (i.e. I've never paid capital gains tax because I've never made a capital gain).