Tax dodgers have gotten the message. The IRS said in one week alone in July it received 400 voluntary disclosures, compared with 88 for all of last year.
Chicago lawyer Robert McKenzie says so far this year, more than 50 people have sought his assistance with disclosures about foreign accounts, up from a half-dozen last year. "The handwriting is on the wall that the IRS is coming, and people with accounts [in] Thailand to Israel have come to me," says McKenzie, a tax partner at Arnstein & Lehr.
Voluntary disclosure isn't just for foreign accounts. Some tax evaders choose to make voluntary disclosure just to get assurances from the IRS that the matter is resolved, lawyers say.
For most, though, quietly making good on taxes is the way to go. If you failed to file a return as required - some low-income households don't have to - you can submit tax returns for the years you missed. Tax experts suggest you mail in each return separately to avoid attracting too much attention from the IRS.
(If your spouse doesn't file tax returns, or you suspect he or she is fudging numbers, submit returns under "married filing separately" status to avoid being held liable for your spouse's actions, says Steve Albert, a tax partner at Glass Jacobson in Owings Mills.)
You also can amend returns to correct mistakes by filing a Form 1040X. You'll need to explain why you are correcting the return.
If you're catching up with filing, you will have to pay back taxes, interest and penalties, McKenzie says. When amending returns, you'll owe back taxes and interest, but maybe not a penalty, he says.
Can't pay all at once? The IRS offers payment plans and, under limited situations, might even accept less than owed.
Of course, getting right with the IRS could mean you will have to do the same with the state.
In Maryland, the timing couldn't be better.
Starting next month, the state is launching an amnesty program for those who haven't paid their taxes on returns due last year or earlier. Pay up, and civil penalties plus half of any unpaid interest will be waived. You won't be criminally prosecuted, either, unless you're already under investigation.
If you can't afford to pay immediately, the state will offer a payment plan. You will have to pay 10 percent of what you owe upfront and pay the rest by the end of next year.
Amnesty applications are available online at marylandtaxes.com or by calling 410-260-7951. Your application must be postmarked by Oct. 30, the date the program ends.
Sure, coming clean might be costly, but it has benefits.
"People worry about [unpaid taxes] or their spouses worry about it, and it goes on for years," says Albert. "If they file, they have peace of mind."
