> Under what regulation?

Unfortunately when it comes to the IRS, current laws and regulations are irrelevant. They prosecute retroactively and change the rules as they see fit to scare the public into compliance.

The fact that people are so quick to ask about IRS compliance with bitcoins is evidence of this. People feel an obligation to an entity they owe nothing to, because they are scared to death if they don't report a couple bitcoins, that FBI, secret service, or even ATF is going to break down their door and storm in with assault rifles.