It's not a recognized currency, and thus must not be marked as income.  However, once you trade from bitcoins to USD, you must declare it as income.

So, you report it as income when you receive it.

Just as you do when you sell something on e-bay and on craigslist.

Yeah.... just like when I do that.... which I do every time I sell something on craigslist....

I read a short time ago on the IRS website that hobby income is not taxable unless you make a profit at it.  But that's neither here nor there: I don't think anyone's fooling themselves about how serious the fedgov is about non-dollar denominated transactions... particularly not those who know who Robert Kahre is.

Well, let's see here.  We pay ~1 E+4 USD per year in cash to various people for cleaning, home repair, lawn care and so on.  I strongly suspect that they don't declare that income.  Multiply that by ~114 E+6 US households, and you get ~1 E+12 USD per year.  That's about 10% of estimated 2010 US personal consumption expenditures -- 10.4 E+12 USD per year, according to the US Bureau of Economic Analysis.  Even discounting for honesty, that's a large share.  And we in the US are probably more honest about such matters than most, yes?  China?  India?