To a great many people, offshore accounts have a vaguely disreputable character, and for good reason: They’re a traditional refuge for tax cheats, mobsters, and other unsavory types seeking to conceal their assets from prying eyes. But offshore accounts are far more commonly used by ordinary people, including many small-business owners who have overseas business interests or who travel frequently or have vacation homes abroad.

In fact, I have one myself—a rupee account my wife and I have at an Indian bank, which my wife uses to receive payments from freelancing for Indian papers and to use when we’re traveling on the subcontinent. This account, tiny as it is, has always made me vaguely nervous at tax time, as I don’t want to get caught in the kind of well-publicized crackdowns that have sometimes snared customers of Swiss banks.

India makes it hard for people from overseas to open accounts, but most foreign countries are more than happy to take your money. “It’s like opening an account in another state,” notes Peter D. Hardy, a partner with Post & Schell PC and a former trial attorney with the Justice Department’s Tax Division. He recently authored a book for the legal crowd titled Criminal Tax, Money Laundering and Bank Secrecy Act Litigation.

With all the publicity that has surrounded offshore accounts lately, including a settlement with the Swiss banking giant UBS in which thousands of account holders names were turned over to the feds, businesspeople with overseas accounts have every right to be nervous.

Hardy told me that the main problem facing Americans with offshore accounts is navigating the complex web of forms, rules, and regulations governing offshore accounts. They’re designed to prevent money laundering and other nastiness, but also can snare the unwary. The biggest snare, he says, is not checking the appropriate box on the Form 1040 tax return, thereby disclosing that one has an overseas account, and filing a Foreign Bank and Financial Account Report, or FBAR, “It’s not inherently bad to have an offshore account.

Thousands of small-business people have it when they have an international aspect,” notes Hardy. But they can become problematic when businessmen, because of the complexity of the rules—or inadequate advice from tax preparers—don’t file that FBAR. It’s required for people with accounts overseas that have totaled at least $10,000 at any time during the year.

That’s the general rule. Fortunately, it excludes the smallest account holders like me. But businessmen engaged in any volume of transactions abroad are likely to need to file FBARs, even if they own such accounts through corporations that they control. Hardy points out that the potential penalties for failing to file FBARs are draconian—up to 50 percent of the overseas assets per year. However, such penalties, he says, are ordinarily imposed as sanctions in criminal cases, when it can be proved that the taxpayer has willfully been trying to rook Uncle Sam.

For a few months in 2009, the government had a special program allowing FBAR delinquents to file the form in return for a lesser penalty of 20 percent of holdings. But that program expired in October 2009, and it was a great success: During that period, 15,000 U.S. taxpayers disclosed their offshore accounts in more than 70 countries. Hardy says that there is now uncertainty among taxpayers as to the kind of penalties that they may face if they decide to make things right. Sometimes, he says, they may decide to risk being sued by the government, in the view that lesser penalties may be imposed.

The problem, you see, is that offshore accounts just aren’t all they’re cracked up to be when it comes to confidentiality. The old stereotype of numbered Swiss bank accounts and tight-lipped bankers has pretty much gone by the boards, largely because of the government’s litigation with UBS. The Swiss banking giant turned over the names of 4,000 account holders under a 2009 deal with the Justice Department, and the IRS expects to get 7,500 more. Hardy says that account holders at other Swiss and overseas banks also may find their identities turned over to the IRS. “It’s unclear if other banks are cooperating with the IRS or Justice Department,” he says. But taxpayers seeking to evade the feds should think twice before doing so. Prosecutors, he says, are “trolling for the next big case.”

So the best word of advice to people with offshore accounts is “when it doubt, disclose.” Or at least consult a tax adviser who knows something about offshore accounts.

I can’t say the prospect of that leaves me weeping, considering how—despite the complexities and forms involved—the basic principle is pretty simple. That is, if you own an offshore account, however small, you have to declare all interest income to the IRS and disclose the existence of the accounts if they’ve totaled at least $10,000 during the year. Creating a corporate shell to own the account won’t help, and might actually be an indication of “bad faith,” Hardy says, thereby inflaming the IRS. Which is something you don’t want to do.

And, yes, just in case the IRS is reading this, I always declare the interest I get from my rupee account, lack of a 1099 notwithstanding.