You don't have to own a Swiss bank account to evade taxes.
Maybe you purposely underreport your income to the IRS or have gone along for years without filing a tax return. Or, you made a mistake significantly in your favor on the return and never fixed it.
Whatever the case, it's not too late to make it right with the IRS. Uncle Sam prefers that you voluntarily come forward and pay what's due rather than having to track you down or, in serious cases, prosecute you. And while you're at it, you might need to make good on state taxes. Fortunately for Marylanders in tax arrears, the state is launching an amnesty program next month.
About 85 percent of taxpayers voluntarily pay their share of federal taxes each year, according to the IRS. But an estimated $290 billion of taxes go uncollected annually. Some of that revenue is likely in the Alps and might be collected soon. The U.S. struck an unprecedented agreement last week with the super-secretive Swiss to turn over information on about 4,450 UBS accounts suspected of being set up to dodge taxes here.
So how do you get square with taxes?
Basically, you have two options: the quiet way and the noisy way, says George Clarke, a Washington lawyer whose practice focuses on defending clients on tax matters.
The quiet way is where you file back returns or amend returns and pay what you owe without calling attention to yourself, he says.
The noisy way is to approach the IRS and make a voluntary disclosure, where you come clean, pay taxes, interest and penalties and, in return, generally avoid prosecution. The key is to come forward before the IRS has you in its sights.
"If you find us before we find you, typically you won't be prosecuted," says IRS spokesman Eric Smith.
The best option for you will depend on what kind of hot water you're in.
Let's say you haven't reported income from an offshore account, activity that is now the target of the IRS. In this situation, make the voluntary disclosure, experts advise. For six months - ending Sept. 23 - the IRS is offering Americans hiding assets offshore to come clean and potentially avoid prosecution and steep penalties.
How steep? The IRS offers an example: Say you deposited $1 million in a foreign account six years ago and since then earned a total of $300,000 in unreported interest income. Voluntarily fess up, and you would pay $386,000 plus interest. That's high, but if you keep quiet and the IRS catches you, you could end up paying $2.3 million - or more.
