Shadow Economy Law and Legal Definition

Shadow economy also known as underground economy refers to a portion of the economy that goes largely undetected by taxing authorities. It includes income generated through illegal means, such as prostitution or gambling, as well as legitimate but cash-based activities such as online auctions or bartering services. Even though many states require residents to pay sales taxes on products bought online, few have the means to enforce them. There are very few ways of tracking the activities of an underground economy. It is estimated that about that the underground economy in the United States alone accounts for up to 1 trillion US Dollars (USD) per year in unreported cash holdings.