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The state is losing an estimated $10 billion a year in revenue due to the underground economy, non-filing of tax returns, overstatement of deductions and other forms of tax evasion, a new study by the Franchise Tax Board staff estimates.

That's nearly twice as much as what Gov. Jerry Brown hopes to realize from his tax increase ballot measure.

Scott Reid, the state tax agency's research director, told the board this month that the estimate, which is up from $6.5 billion seven years ago, is extrapolated from an extensive study by the federal Internal Revenue Service.

Reid gave the board one example of how the state's "tax gap" emerges: A taxpayer who donates to charity a slightly used suit of clothes that originally cost $300 and values it at $75 for a tax deduction, only to see the suit actually listed for sale at $10.


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