The incomes of those who are self-employed and income from wages and salaries are the two largest sources of unreported income. Reporting is lowest for self-employment income and income from rents and royalties. Unreported wages and salaries for those who file tax returns is mainly cash income earned in second jobs and other activities. Many individuals who do not file income tax returns also earn wages and salaries, particularly from small businesses and households. The self-employed who file no returns are generally service workers, craftspeople, and professional people. Although the rate of underreporting for dividend and interest income is not particularly high, the rate of nonreporting of interest income has risen markedly in recent years. In 1976, only about 50 to 65 percent of all rental income was reported. In addition, about $1 billion of income from barter transactions may have been unreported in 1974. The rate of tax avoidance increases at an increasing rate with the overall tax rate. Tax evasion may also help alter the income distribution. Tax evasion increases the personal wealth of individuals and costs the government in both loss of revenue and the expenses of compliance programs. The social costs of tax evasion are far larger and consist of the higher taxes paid by taxpaying citizens and the necessity of the higher taxes paid by taxpaying citizens and the necessity of foregoing public services that would otherwise be available. Research on factors which influence compliance and on the size and characteristics of the tax evaders is needed. The government should use a broader range of policy instruments to encourage tax compliance. Case examples, a data table, appendixes presenting background information and additional data, and 25 references are included.