Tax evasion or tax fraud is an illegal attempt to defeat the imposition of taxes by individuals, corporations, trusts, and others. Tax evasion often entails the deliberate misrepresentation of the taxpayer's affairs to the tax authorities to reduce the taxpayer's tax liability, and it includes dishonest tax reporting, declaring less income, profits or gains than the amounts actually earned, overstating deductions, bribing authorities and hiding money in secret locations.

Tax evasion is an activity commonly associated with the informal economy. One measure of the extent of tax evasion (the "tax gap") is the amount of unreported income, which is the difference between the amount of income that the tax authority requests be reported and the actual amount reported.

In contrast, tax avoidance is the legal use of tax laws to reduce one's tax burden. Both tax evasion and tax avoidance can be viewed as forms of tax noncompliance, as they describe a range of activities that intend to subvert a state's tax system, but such classification of tax avoidance is disputable since avoidance is lawful in self-creating systems. Both tax evasion and tax avoidance can be practiced by corporations, trusts, or individuals.

In 1968, Nobel laureate economist Gary Becker first theorized the economics of crime, on the basis of which authors M.G. Allingham and A. Sandmo produced, in 1972, an economic model of tax evasion. This model deals with the evasion of income tax, the main source of tax revenue in developed countries. The authors analyse the decision of a risk-averse agent who maximizes her utility by choosing the optimal level of undeclared income. According to the authors, the level of evasion of income tax depends on the detection probability and the level of punishment provided by law and the level of risk aversion. Later studies, however, pointed limitations of the model, highlighting that individuals are also more likely to comply with taxes when they believe that tax money is appropriately used and when they can take part on public decisions.

The literature's theoretical models are elegant in their effort to identify the variables likely to affect non-compliance. Alternative specifications, however, yield conflicting results concerning both the signs and magnitudes of variables believed to affect tax evasion. Empirical work is required to resolve the theoretical ambiguities. Income tax evasion appears to be positively influenced by the tax rate, the unemployment rate, the level of income and dissatisfaction with government. The U.S. Tax Reform Act of 1986 appears to have reduced tax evasion in the United States.

In a 2017 study Alstadsæter et al. concluded based on random stratified audits and leaked data that occurrence of tax evasion rises sharply as amount of wealth rises and that the 0.01% richest are about 10 times more likely than average people to engage in tax evasion and they evade as much as 25% of their taxes.

The tax gap describes how much tax should have been raised in relation to much tax is actually raised. The IRS defines the gross tax gap as the difference between the true tax liability for a given year and the taxes actually remitted on time. It comprises the non-filing gap, the underreporting gap, and the underpayment (or remittance) gap. Voluntary tax compliance in the U.S. is approximately 85% of taxes actually due, leaving a gross tax gap of about 15%.

The tax gap is growing mainly because of two factors, the lack of enforcement on the one hand and the lack of compliance on the other hand. The former is mainly rooted in the costly enforcement of the taxation law. The latter is based on the foundation that tax compliance is costly for individuals as well as firms (tax filling, bureaucracy), hence not paying taxes would be more economical in their opinion.