The IRS purposely keeps the definition of income loosely defined so that they can broadly apply it as new schemes and technologies arise. I am sure the IRS could bust you for income tax evasion if you didn't declare your bitcoin appreciation as income.
I am sure the IRS could bust you for tax evasion even if you were the world's only completely honest person. The tax code is so needlessly complex that there is always some hidden land mine that could be used to nail you to the wall.
Just don't reveal your Bitcoin activities to the authorities, purposefully or accidentally, and they will never find any reason for their flagging algorithm to elevate your account to human scrutiny. Nor will they have evidence that could be used against you.
Anything passing through an exchange that follows state banking rules might get you into trouble, but you don't necessarily need to use an exchange to turn BTC into USD.
You would have to declare income at sale on a difference between bought and sold prices. You wouldn't have to declare appreciation as long as you were just holding.
