You need to talk to a lawyer to make sense of this.
Evaluating any legal question requires a detailed knowledge of the specific facts involved. Since a short question will rarely contain all the relevant facts, the answer here should be considered a general comment for your consideration and not legal advice.
There are a range of possible penalties including interest, gross understatement of liability, EIC disallowance in the future, etc. The IRS allows you to be a whistleblower on its website.
THESE COMMENTS ARE NOT LEGAL ADVICE. They are provided for informational purposes only. Actual legal advice can only be provided after consultation by an attorney licensed in your jurisdiction. The answer to question does not create an attorney-client relationship or otherwise require further consultation. Mrs. Cook is licensed to practice law throughout the state of California with offices in San Diego County. She is authorized to handle IRS matters throughout the United States, and is also licensed to practice before the United States Tax Court. IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with requirements imposed by the IRS, please be advised that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used or relied upon, and cannot be used or relied upon, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.