Ive heard bitcoins are about to be taxed by the IRS. The decision has been taken to regulate the virtual currency as there are concerns of it being used for illegal purposes. Is this True ?
In the US income is taxed so I would expect income from Bitcoin to be taxed in some manner. Usually the tax occurs when there is an increase in USD but not in virtual currencies such as the Second Life Linden. Bitcoin is a little different and it's place is still unknown, it is somewhat virtual and moving into the real world, real things can be bought and sold making it more a "real" currency.
To think that one can escape taxation by using Bitcoin instead of USD is not realistic. It is not particularly different that using the Euro to escape US taxation.
There is also a moral issue: Using Bitcoin (or another currency) to escape taxation yet still using services and infrastructure paid for with taxes by others. Think roads, schools, parks, etc.
Concerning illegal purposes" That is a concern of the government and seems to be the reason US currently denominations are limited to $100. The Euro's largest note is €500. The concern is not helped by the CryptoLocker perpetrators using BTC for the ransom.