It was announced yesterday that the Swiss bank UBS is going to release the names of some U.S. citizens who are account-holders, and who are suspected by the U.S. government of using the Swiss bank to hide assets and thus avoid paying taxes on those assets. To date, there have been four criminal prosecutions arising from the release of names; however, the government is offering amnesty for those who voluntarily come forward prior to Sept. 23, 2009. Those who come forward will still have to pay up, but will avoid the stigma of a criminal trial.
Normally, when people simply fail to pay their taxes, the IRS does not pursue criminal proceedings- it is more concerned with collecting the money owed, and does so through enforcement measures such as levies, liens and seizures. However, when a person willfully evades paying tax by hiding assets or failing to report income, the IRS can process those cases as criminal rather than civil, and can put the offender behind bars.
What constitutes tax evasion? We are supposed to pay tax on most forms of income we receive. Any time a person has income that they fail to report on their tax return, they are evading income tax. This is not just an issue for the wealthy- it could be anything from a hairdresser failing to report cash tips, a business owner bartering for services, or a gambler failing to report winnings. If you’re unsure on what types of income need to be reported, this IRS article on Taxable & Non-Taxable Income gives additional information.
What can be done if you have unreported income, and want to avoid a problem? For past years, tax returns can be amended to include the additional income. The IRS is more likely to be amenable to working with the taxpayer if they are forthcoming, and arrangements can be made to pay off any balances due over time, if necessary.
If you are concerned about unreported income on your tax returns, you should consult a tax professional, who can advise you on the best course of action and assist you in amending any tax returns or making arrangements for any outstanding balances due.