@audacious
Sorry, I mentioned "in US" and "IRS" and figured it would be obvious, but yes I live in the US. 

@1ref
yes, I will ask a tax person I guess.

but while we are here I guess I will try to figure out as much as possible (yay to the advent of forums). So, correct me if I am wrong, but if I transfer money directly from a paper wallet (lets call this the starting point) to an exchange acount, then immediately cash out by sending to my bank account, there should be no gains from trading bitcoin right? because I am not buying then selling, I am funding, then cashing out.  So it would simply be a matter of claiming the income being cashed out from the exchange account? 

thanks for helping me figure this out.