Connecticut revenue officials estimate 2022 "tax gap" at about $3.7 billion, urge more auditors and policy changes

Department of Revenue Services Commissioner Mark Bowden told the General Assembly’s finance committee that Connecticut’s 2022 gross tax gap — the difference between taxes owed under full compliance and taxes actually collected — is roughly $3.7 billion, and that enforcement activity typically recovers roughly $700 million to $800 million of that total.

The report, prepared at the General Assembly’s direction and publicly released at the hearing, breaks the gap into three broad categories: underreporting (about 80 percent of the gap), underpayment (about 14 percent) and nonfiling (about 6.5 percent). Bowden said the agency measured the gap for the single year 2022 and will continue to refine the estimates in future reports.

The tax gap matters because it affects state revenues available for programs without raising tax rates. "We were charged, by the general assembly to develop something called the tax gap report," Bowden said, adding that the study is a first step and a work in progress. He emphasized the report also touches on fairness: "Everybody ... want folks to pay their fair share," Bowden said.

Key findings and figures

- Gross tax gap for 2022: approximately $3,700,000,000. - Enforcement recoveries (multi-year processes included): about $700,000,000–$800,000,000. - Underreporting accounts for roughly 80 percent of the gross gap; Bowden said the bulk of that is driven by cash-based, informal or irregular transactions such as personal services and other underground-economy activity. - Net underpayment shortfall cited in the presentation: about $101,000,000; net nonfiling gap: about $73,000,000.

Bowden and Deputy Commissioner John Bialos described the underreporting problem as concentrated in cash and…