My guess is that PayPal et al don't particularly care - the onus is on the bitcoin user (i.e. the consumer) to calculate capital gains, report to the IRS etc. Those consumers probably don't care - they'll wait to see how/if the IRS actually has a willingness/ability to enforce their own guidelines...

Not sure where you get that they're ignoring it. TFA says nothing of taxes, and that burden falls on the buyer anyway. Unless you're saying that the IRS's guidelines mean it can't be used to buy things for some reason, which is just not true at all.

Ignoring in the sense that Paypal thinks its worth their time to facilitate consumer transactions based on bitcoin.

As the bloomberg article states, if I have to factor in my my capital gains tax liability with each purchase of an ebook or mp3, then that is a royal pain and would lessen my desire to use bitcoin for everyday purchases.

It seems to me that perhaps Paypal just see's the IRS guidelines as a non-factor for consumers who will largely just ignore the guidance similar to how consumers are technically supposed to pay state sales tax on online purchases.

I'm not totally sure about the US case but in the UK you are technically liable for capital gains tax on foreign currency appreciation so if I buy US$ at 1.60 to the £ and buy a cup of coffee when for $2 when it's 1.40 to the £ I should declare the 20c or so appreciation in my dollars in pound terms. In practice no one bothers for small sums and if you've made a gain of say £10k you can estimate an average rate rather than itemising each coffee. In theory the tax inspectors could come back and ask you to itemise but in practice they have better things to do with their time. I imagine the US and bitcoins would be similar.

True, except it's not only that people don't bother to report holiday cash transactions - there are formal exemptions from capital gains tax in the UK for (i) cash which is for personal use while travelling outside the UK and (ii) (since 2012) for all foreign currency bank accounts. In terms of what most people do, it's only if you hold or use the currency for investment purposes that you need to worry.

HMRC initially tried to treat Bitcoin in the same way as gift vouchers, not currencies, which meant that different rules applied (particularly in relation to VAT). However they now apparently treat is as a currency which in theory means the above exemptions are open to people to claim.

There are issues with this though. Firstly, in the legislation "bank account" is not explicitly defined so it's unclear exactly which forms of wallet might qualify for that exemption, if any. Secondly, the exemption for physical currency doesn't include personal use of a foreign currency within the UK.

So it's still pretty unclear whether you'll be subject to CGT or not.

Most stuff that makes money gets taxed. The HMRC exempt investment in cars and gambling because they figure most people lose on those. Guess that goes for holiday money too as the money change fees probably exceed currency gains. Dunno if you could classify bitcoin as gambling on the value of some inherently worthless bits? Might have a chance with that one.

Merchants who use BitPay and Coinbase to accept Bitcoin usually choose to let those processors convert the funds to dollars on their behalf. Neither PayPal nor the merchants will typically touch Bitcoin during a transaction.

The Australian government is expecting bitcoin users to report for EVERY transaction, how much it was, to which address, and for WHAT.

Imagine if they had that kind of need on cash or even electronic bank transactions.

No way in hell that theyd even be able to look at all the data they'd receive at tax time.

I see a few places where bitcoin is accepted as donation. How is that taxed if/when spent?

Not a tax lawyer, but assuming the donations are small and no one is trying to write it off on their taxes , I think it's treated as a gift. See http://en.m.wikipedia.org/wiki/Gift_tax_in_the_United_States.