American clients of UBS AG were formally warned by the bank that their undeclared income in Switzerland may be revealed to U.S. tax authorities, according to a letter obtained by Reuters on Friday.

The Swiss bank, which agreed to hand over 4,450 account names to the U.S. government in August, told clients they have 20 days to appoint a lawyer in Switzerland, or be assigned one by the Swiss authorities, according to the letter, dated September 10.

The process may ultimately result in the submission of your account documents .... to the IRS (U.S. Internal Revenue Service) and the loss of the opportunity to participate in the IRS Voluntary Disclosure program, the letter said.

The form letters were sent ahead of the approaching September 23 deadline for the IRS amnesty program, in which U.S. citizens can voluntarily reveal to tax authorities income held in tax havens such as Switzerland, Cayman Islands and Monaco.

In exchange for coming clean on their own, individuals pay back taxes, a reduced fine and generally avoid criminal prosecution. When that amnesty program expires, any tax cheats found by the government face more costly penalties as well as possible criminal prosecution.

I've received a number of calls from people who have actually received a letter from UBS this week and these people are panicking, said Paul Behling, a lawyer with Withers Bergman, a firm working on about 300 such cases worldwide. Basically it's a rush for them.

(Reporting by Kim Dixon; Editing by Lisa Von Ahn, Dave Zimmerman)