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I've been asked in the past if I could accept Bitcoin. I believe there are even services that convert Bitcoin on the fly to US dollars for you when you accept a purchase. It doesn't really seem like a smart business decision though. What are the legal ramifications of accepting money that came from Bitcoin? Is the IRS going to come knocking at your door? My gut tells me to avoid BTC like the plague, but it does intrigue me.

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Why would the IRS come knocking at your door? Take the same laws that apply to any other currency transaction and apply.

Would they/why would they, these are the questions I'm asking because I'm uncertain how these things even work. With currencies backed by nations I can see the IRS not caring, but Bitcoin isn't just "any other currency." It's a currency not made up or backed by any nation. In a way it's money out of thin air. That's what worries me.

The IRS doesn't care where your income comes from. They care that it is (1) reported, and (2) correctly valued. They have, for example, rules for reporting bartered income[1]. Barter is certainly not "any other currency" either.

[1]: http://www.irs.gov/businesses/small/article/0,,id=187904,00....

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