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. Internal Revenue Service - IRS

    A United States government agency that is responsible for the ...
  3. Deduction

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

    An amount of money that a taxpayer is able to subtract from the ...
  5. Taxes

    An involuntary fee levied on corporations or individuals that ...
  6. Deficiency Agreement

    An arrangement in which a party provides a firm with funds to ...
Related Articles
  1. 12 Things You Need To Know About Financial ...
    Investing Basics

    12 Things You Need To Know About Financial ...

  2. Getting A Job As The Tax Man
    Insurance

    Getting A Job As The Tax Man

  3. Surviving The IRS Audit
    Taxes

    Surviving The IRS Audit

  4. A Look At Accounting Careers
    Personal Finance

    A Look At Accounting Careers

Hot Definitions
  1. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  2. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  3. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  4. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  5. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  6. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
Trading Center