Deficiency

AAA

DEFINITION of 'Deficiency'

Conceptually, the numerical difference between the amount of tax that a taxpayer or taxpaying entity reports on a tax return and the amount that the IRS determines is actually owed. The term only applies to shortfalls and not to surpluses. Taxpayers are notified of deficiencies via deficiency letters.

INVESTOPEDIA EXPLAINS 'Deficiency'

Deficiencies can easily become back taxes if prompt action is not taken by taxpayers. A notice of deficiency does not automatically equate to an audit or disciplinary action, but it should be taken seriously. Taxpayers can use the contact information provided on the deficiency letter to contact the IRS for further information.

RELATED TERMS
  1. Audit Risk

    The risk that an auditor will not discover errors or intentional ...
  2. Taxes

    An involuntary fee levied on corporations or individuals that ...
  3. Deficiency Letter

    A letter, issued by the Securities and Exchange Commission (SEC) ...
  4. Deduction

    Any item or expenditure subtracted from gross income to reduce ...
  5. Tax Credit

    An amount of money that a taxpayer is able to subtract from the ...
  6. Deficiency Agreement

    An arrangement in which a party provides a firm with funds to ...
RELATED FAQS
  1. What are some of the arguments against a value added tax (VAT)?

    Critics of the value-added tax, or VAT, system say that not only is it costlier to implement compared to the ad valorem system, ... Read Full Answer >>
  2. What are the differences between regressive, proportional and progressive taxes?

    Tax systems fall into three main categories within the tax code: regressive, proportional and progressive taxes. Regressive ... Read Full Answer >>
  3. What's the difference between the marginal tax rate system and a flat tax?

    In modern economics, there are two main types of tax systems: marginal tax rate and flat tax rate. Under a marginal system, ... Read Full Answer >>
  4. Is the marginal tax rate a progressive tax?

    The marginal tax rate is a type of progressive tax system that imposes a higher income tax rate on people with higher incomes, ... Read Full Answer >>
  5. Are marginal tax rate schemes more fair than flat taxes?

    The proper framing of the question should be, "To whom is a marginal tax rate fairer," as progressive, marginal, and flat ... Read Full Answer >>
  6. What deductions, credits and exemptions depend on gross income calculations?

    The greatest challenge in determining your total tax liability stems from an incomplete understanding of what income figure ... Read Full Answer >>
Related Articles
  1. Investing Basics

    12 Things You Need To Know About Financial Statements

    Discover how to keep score of companies to increase your chances of choosing a winner.
  2. Insurance

    Getting A Job As The Tax Man

    If you'd like the IRS to pay you some money for a change, consider a career working in taxes.
  3. Taxes

    Surviving The IRS Audit

    Keeping thorough records and knowing the penalties make this experience easier than you'd expect.
  4. Personal Finance

    A Look At Accounting Careers

    More than just crunching numbers, this career blends detective work with trouble shooting.
  5. Retirement

    Avoid An Audit: 6 "Red Flags" You Should Know

    Don't make yourself a target - steer clear of these attention-grabbing tax-filing practices.
  6. Professionals

    An Inside Look At Internal Auditors

    Find out why these number crunchers are part of every chief officer's dream team.
  7. Taxes

    What is Adjusted Gross Income?

    Adjusted gross income (AGI) is a term from the Internal Revenue Code. AGI is used to determine a person’s income taxes due.
  8. Taxes

    Explaining Progressive Tax

    A progressive tax is a levy in a tax system where the tax rate increases as the taxable base increases.
  9. Economics

    What's a Regressive Tax?

    A regressive tax is a levy in a tax system where the tax rate does not change based on the level of income.
  10. Economics

    What is a Tax Liability?

    Tax liability is the amount of money a person or entity owes to the government as the result of a taxable event.

You May Also Like

Hot Definitions
  1. Mixed Economic System

    An economic system that features characteristics of both capitalism and socialism.
  2. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  3. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  4. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  5. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center