TAXPAYER COMPLIANCE COSTS FOR SMALL BUSINESSES: EVIDENCE FROM CORPORATIONS, PARTNERSHIPS, AND SOLE PROPRIETORSHIPS

To measure compliance burden for small businesses the Internal Revenue Service (IRS) has deployed since 2006 the Small Business Burden Model (SBBM). This model complements the IRS Individual Taxpayer Burden Model (ITBM) in use since 2003 and using new burden survey data collected in 2008-2009. The paper discusses the current econometric specifications for the SBBM and the ITBM, with the emphasis on sole proprietor and schedule E income in the individual model. These models and associated burden measurements are compared with previous findings for the large business population reported by Slemrod and Venkatesh (2002). After addressing this broader context, the paper focuses on the compliance burden aspects of flow-through entities in comparison with other entity forms including C-corporations appearing to operate as implicit pass-through entities. The authors find higher marginal compliance burden associated with partnerships, than with C and S corporations. Consideration of the compliance burden to partners and shareholders further emphasizes the higher marginal burden for partnerships.