with the current volatility in btc prices,  I wonder how accounting/reporting mechanisms those merchants need to employ in order to avoid the possibility of paying high tax based on fiat book value at the time of sale versus the market value when the btc price is low during financial reporting period.

The best solution imo that would benefit both and reduce volatility/loss risk on the merchant side would be if the IRS was smart enough to tax bitcoin in btc as opposed to property/fiat tax.

But that step I believe is too early as doing so will effectively legitimize btc as a currency, which is something the IRS wouldn't do anytime in the near future.