Hmm, really? To effectively enforce this (in a BTC only world), they would need to constantly be de-anonymising the blockchain. That would require dark-pools to be illegal (in the long run), which would require a unified world government.
It's either that, or simply expect people to hand them money on good faith.
The same way as enforcing for cash - you collect most of it on good faith, and for the 'bad faith' cases you try to catch some % of violators and punish them harshly enough so that the rational choice is to declare truthfully upfront.
The linked article is almost exclusively about a non-BTC-only-world, though. The two main issues it tackles: 1) tax consequences of selling bitcoins for USD; and 2) reporting requirements for holding bitcoins in a foreign exchange.
There are many historical examples on how to do effective taxation without looking at your transactions.
For example, a classic approach is simply to assign you a flat tax amount per year, and periodically visit you to check "how you're living" to reassess how much you'll have to pay.
It's generally worse than the current approach (less accurate, even more prone to corruption), but it works sufficiently well, and would work even in bitcoin-only world.
It's either that, or simply expect people to hand them money on good faith.