Q: What are the penalties for failure to report income? How serious does the IRS pursue these cases?
Over a period of multiple years.
A:
If the person is audited then they can receive up to a 50% penalty depending on whether or not the IRS considers it fraud or not. That is on top of all the other penalties and interest that will also be assessed. I cannot tell you whether or not the IRS will audit a taxpayer without a lot more detail. There are certain red flags that can make an audit more likely. There are always random audits. Sometimes someone reports a taxpayer and the IRS investigates.
There are many ways to correct and resolve issues like this and the stress of worrying about it can be worse then actually taking care of it. I recommend speaking with a tax attorney. Just stay away from the places you see advertised on TV. With the current corona virus concerns many attorneys have set up ways to consult with people over the phone or via skype.
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