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Golden State Suffers $10 Billion Tax Gap

Californians Stiff Sacramento

In the Golden State, things are looking less golden for Sacramento’s bean counters.

The chief researcher for California’s tax agency told his supervising board that the state loses out on $10 billion every year at a time when the state is making billions in budget cuts.

There are multiple reasons why the tax gap is so large. Taxes aren’t paid in the underground economy. Some taxpayers – or non-taxpayers – just don’t file tax returns. And other taxpayers overstate their deductions. Other forms of tax evasion contribute, too.

Californians aren’t helping Sacramento out, either. The $10 billion figure – based on a tax gap study by the IRS – is up from $6.5 billion in 2005.

Just six years ago American taxpayers stiffed Uncle Sam $450 billion. That figure was due to corporations and people underreporting their income. After the IRS kicked its collection actions into high gear, the tax gap figure stood at $385 billion.

But with California’s economy one of the largest in the world, it’s own tax gap is going to be significant.

California’s tax gap figure can also be due to the state’s exodus of high income earners. Those earning more than $500,000 declined in numbers dramatically from 2007 (146,000) to 2009 (98,610), as California’s economy stagnated.

Whether you’re in California or in Oklahoma, the IRS will be out to collect if you owe back tax debt. But by hiring a tax attorney or tax professional, you’ll be in a better position to reach an agreement with the IRS and possibly save money along the way, which is a Golden State everyone can appreciate.

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