Quizzard is correct: you must report all income.
This is ridiculous, but it is the law. Change the law and encourage your senator and congressman to support HR 25 / S 296, the Fair Tax. Learn about it fairtax.org, and join us at fairtaxnation. The tax system we currently have is literally destroying the U.S. economically and doesn't afford us the means with which to support the federal government, or ourselves, for that matter. You will see that the Fair Tax plan actually permits millions of jobs to come back to the U.S., trillions of U.S. dollars in offshore counts to come back, broaden the tax base, finances the federal government, and allow you to keep any and all income without penalty of withholding taxes.
Call your congressman, your senator, and the House Ways and Means Committee, where this vital bill currently sits. This matter is urgent and vital to our economy.