Underreporting Income

Underreporting income occurs when an individual or business fails to report all their earnings to tax authorities, thus paying less tax than they owe. This can involve omitting cash payments, inflating expenses, or misclassifying income. It is considered a form of tax evasion, which is illegal and can lead to severe penalties, including fines and criminal charges. Essentially, underreporting skews the financial picture presented to tax authorities, undermining the integrity of the tax system and shifting the burden unfairly to those who do comply with tax laws.