Tax Gap

Experts define the tax gap as the difference between what taxpayers owe and what they voluntarily pay. After adjusting for audit and collection activities, the IRS estimates that in 2006 the net national tax gap was approximately $385 billion. Based on this figure, we estimate California's tax gap (at least for the personal and business taxes that we administer) to be about $10 billion per year.

Tax Gap Components. 80% due to underreporting or overdeducting. 10% each due to underpayment or not filing.

Current activities

We take a comprehensive approach to address the tax gap by using strategic planning, technology, education and outreach, effective enforcement, and partnerships with other state agencies.

Below are some of the steps we are taking to reduce the tax gap:

  • Increasing the department’s compliance efforts through better use of existing data.
  • Modernizing our tax systems to better use data with our Enterprise Data to Revenue (EDR) project.
  • Expanding partnerships with other government agencies to enhance compliance efforts.
  • Educating taxpayers about the tax gap.
  • Educating our front-line staff about new tax avoidance schemes.

How you can help

Report income tax fraud – If you believe an individual or company is not complying with California's personal income tax or corporate income and franchise tax laws, you can report that information to Franchise Tax Board (FTB).

Why you should help

The failure by some to pay what they owe means that the rest of us bear an additional burden. This can come in the form of higher fees and taxes, fewer government services, or budget deficits—or all three.