Under Reporting

AAA

DEFINITION of 'Under Reporting'

The deliberate act of reporting less income or revenue than was actually received, usually for income tax purposes. Under-reporting income in order to avoid taxes is an illegal practice.

When people under report their incomes, the federal government loses tax revenue that could go towards social security, Medicare and other federal projects. Corporations are especially watched by auditors because of the large tax bills at stake each tax year.

INVESTOPEDIA EXPLAINS 'Under Reporting'

If caught under reporting, individuals and companies will be subject to penalties and, in extreme cases, criminal charges.

Another element of the term's use sometimes applies to public companies reporting lower revenues in a fiscal quarter than were actually recorded. If the company has already been reporting bad news and the stock is down, executives may try to take some revenue from the current quarter and push it into the next quarter. This way, the bad news can be "flushed out", and the company can report an upside surprise in the coming quarter, potentially boosting the stock price. This practice is also illegal!

RELATED TERMS
  1. Tax Haven

    A country that offers foreign individuals and businesses little ...
  2. Income Tax

    A tax that governments impose on financial income generated by ...
  3. Tax Evasion

    An illegal practice where a person, organization or corporation ...
  4. Internal Revenue Service - IRS

    A United States government agency that is responsible for the ...
  5. Loophole

    A technicality that allows a person or business to avoid the ...
  6. Taxable Income

    The amount of income that is used to calculate an individual's ...
RELATED FAQS
  1. What are some of the arguments for and against a Value Added Tax (VAT)?

    A value-added tax (VAT) is a type of consumption tax placed on a product whenever value is added at a stage of production ... Read Full Answer >>
Related Articles
  1. Insurance

    Evaluating The Board Of Directors

    Corporate structure can tell you a lot about a company's potential. Learn more here.
  2. Fundamental Analysis

    Financial Footnotes: Start Reading The Fine Print

    Find out what could be hidden in this often-overlooked part of the financial statements.
  3. Budgeting

    Managing Income During Retirement

    Learn some sensible strategies for making your hard-earned savings last for as long as you need them.
  4. Taxes

    10 Money-Saving Year-End Tax Tips

    Getting organized well before the deadline will curb your frustration and your tax liability.
  5. Forex Education

    How International Tax Rates Impact Your Investments

    International investors need to be aware of the staggering correlation between tax rates and economic performance.
  6. Options & Futures

    Changing The Face Of Bankruptcy

    A 2005 law attempts to unmask fraudulent debtors and still save those who are struggling. Will it affect you?
  7. Markets

    Introduction To Fundamental Analysis

    Learn this easy-to-understand technique of analyzing a company's financial statements and reports.
  8. Taxes

    Corporate Tax Rates: The Highs and the Lows

    The United States is No. 2 in the world for its high corporate tax rate. There are ways around paying it, and many nations with lower rates are worse off.
  9. Taxes

    Are Taxes the Solution for Income Inequality?

    Income inequality continues to increase. Why? And are taxes the solution?
  10. Taxes

    How The IRS Catches Tax Cheats & Liars

    When civil and criminal penalties don't deter people from skipping out on their taxes, the IRS has other tools it can use.

You May Also Like

Hot Definitions
  1. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  2. 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 ...
  3. Covered Call

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

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  5. 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 ...
  6. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
Trading Center