You asked for information on (1) the amount of state taxes that are delinquent, (2) the activities the Department Revenue Services (DRS) undertakes to collect delinquent taxes, and (3) DRS' collection record over the past two or three years.

DRS does not regularly publish aggregate figures for delinquent state taxes. Instead, by law, it maintains a list of the taxpayers whose taxes have remained unpaid for at least 90 days after they were due and the amount each one owes. The list excludes taxes that DRS determines are uncollectible, on which appeals are pending, or that have been abated. The total amount shown on the June 2009 list as delinquent is just over $463 million, including back taxes, interest, and penalties. This amount is just over 4% of all state tax revenue collected in FY 09. But DRS cautions that the delinquent tax total is inflated by income taxes owed by joint filers, who are counted twice because each spouse is separately liable for the couple's full delinquency.

Most taxpayers pay their taxes when due. But for those who do not, DRS uses a variety of tools to determine how much they owe and collect those amounts. These tools include tax audits and computer compliance checks, establishing payment plans for amounts owed, placing liens on and attaching taxpayers' property, and criminal investigations. DRS also cooperates with the federal Internal Revenue Service (IRS) and other states' tax authorities to discover and collect unpaid state taxes.

For the fiscal years 2006 through 2008, DRS conducted an average of over 54,000 tax audits annually resulting in average annual tax assessments of nearly $373 million. Since assessments can be reduced on appeal, these amounts do not equate to revenue collected. Collections of unpaid taxes averaged $120 million in each of those three fiscal years. For FY 09, audit assessments are projected at $433.7 million and collections are expected to be $115 million. Preliminary figures show the state's total tax revenue for FY 09 was $11.4 billion.

Information in this report comes from the governor's proposed budgets for the FY 08-09 and FY 10-11 biennia, the Digest of Administrative Reports to the Governor for FY 07 and FY 08 (the most recent available), and listings of delinquent taxpayer accounts as of June 1, 2009 and the monthly comparative statement of tax revenue for June 2009 posted on the DRS website.

By law, DRS must maintain a list of taxpayer accounts with state taxes that have been unpaid for at least 90 days (CGS § 12-7a). The full list, which includes the taxpayers' names and addresses, tax type, and amount due (tax, interest, and penalties) is available for public inspection at the DRS office in Hartford. Table 1 below shows the aggregate amount owed for each state tax, according to the June 2009 list. The individual income tax total is inflated because each spouse is responsible for paying the full tax liability for a couple filing jointly. Thus, couples are counted twice.

TABLE 1: TOTAL DELINQUENT TAXES, BY TAX TYPE

JUNE, 2009

Source: Department of Revenue Services, June 2009 (Prepared pursuant to CGS §12-7a)

According to DRS' preliminary revenue figures for FY 09, the state's revenue from all taxes and licenses for the year totals $11,408,934,573. The total of the delinquent taxes listed above, even though inflated, thus represents just over 4% of FY 09 state revenue.

DRS' Audit and Collection and Enforcement divisions focus on assessing and collecting unreported and unpaid state taxes.

The Audit Division determines the accuracy of tax returns. If, after an audit, it finds taxpayers have made errors or underpaid taxes owed, it imposes an assessment for unpaid taxes. The division performs both field and office audits. Field audits occur on a taxpayer's premises while office audits happen at DRS offices. In FY 09 DRS had 299 permanent full-time Audit Division positions.

Table 1 below shows statistics on the number of audits and amount of unpaid taxes assessed in the past four fiscal years according to the governor's biennial budgets. The assessment amounts listed do not correspond to amounts collected because assessments can be appealed to the DRS' Appellate Division where they can be reduced. Between FY 02 and FY 07, the average reduction in total assessments by the Appellate Division was 46%, according to figures provided by DRS.

Taxpayers who are not satisfied with the Appellate Division's decision can appeal to Superior Court, but the number of cases appealed to court is small, averaging 4.9% over the five years from FY 02 to FY 07, according to DRS.

Table 1: DRS Audit Division Statistics – 2006-2009

*estimated

After a delinquent taxpayer's appeals have been exhausted or appeal deadlines have expired, the case is referred to DRS' Collection and Enforcement Division. The revenue agents in this division use various means to collect the taxes owed, including:

1. establishing written, phone, or personal contact with taxpayers;

2. establishing payment schedules for taxpayers with unpaid tax liability;

3. placing liens on taxpayers' property and using tax warrants to attach wages and other income; and

4. making arrests as a result of criminal investigations by DRS enforcement personnel.

In FY 09, DRS's Enforcement Division had 79 full-time authorized positions. Table 2 shows collection and enforcement statistics for FYs 06 to 09, according to the governor's last two biennial budgets and FY 09 figures provided by DRS.

Table 2: DRS Collection and Enforcement Unit Statistics, 2006-2009

*estimated

In addition to its regular tax enforcement processes described above, DRS conducts special tax collection and enforcement programs. Examples of these programs and their results are listed below.

● DRS and the IRS collaborate on a program that deducts unpaid Connecticut taxes from federal income tax refunds for taxpayers who have overdue Connecticut taxes. Through 2008, which was the program's second year, the state collected $15.6 million in overdue taxes by this means.

● DRS uses data reported under a federal law that requires cigarette vendors not licensed to sell cigarettes in Connecticut to report the locations in the state where they deliver untaxed cigarettes. By law, the purchaser is required to pay state cigarette tax. Through the end of FY 08, DRS collected $2.1 million in unpaid cigarette tax from people who bought untaxed cigarettes over the Internet in FY 06.

● DRS uses computer technology that automatically analyzes state income tax returns and flags returns for fraud potential. This program saved the state from making $594,234 in fraudulent income tax refunds in FY 07 and $900,000 in such refunds in FY 08.

● In FY 07, Audit Division compliance programs allowed the state to collect $12 million in back taxes from people who failed to file state income tax returns for 2003.

● The Audit Division conducted a compliance check of state employees to see if they filed required Connecticut income tax returns. The check resulted in over $2.1 million in assessments for back taxes owned by state employees, according to a June 24, 2009 letter from the DRS commissioner to state agency heads.

● DRS participates, with IRS and 47 other states, in a cooperative effort to identify participants and promoters of potentially abusive tax avoidance transactions, commonly known as abusive tax shelters. Under this program, Connecticut (1) enacted new penalties for using or promoting abusive tax shelters; (2) dedicated a specially trained team of auditors to uncovering such shelters; and (3) agreed to exchange information with other states to create and maintain a database of taxpayers participating in abusive tax shelter activity.

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