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UC Law Business Journal

Authors

Rafael Efrat

Abstract

Despite the success of many entrepreneurs, a sizable number of small businesses fail every year. Tax problems have been found to be a small but an important contributor to business closure. The extent of the tax problems experienced by small business owners is alarming but not surprising given the disproportionate tax burden small business owners face in operating their businesses. The research undertaken in this study aims to explore the extent to which individual small business owners, who have filed for bankruptcy, attribute their financial distress to tax problems. Further, this study intends to examine the demographics and financial characteristics of small business owners that have pointed to the tax system as the cause of their financial demise.

This study has found that tax problems constitute an important reason for bankruptcy filings for a sizable number of entrepreneurs. Interestingly, those entrepreneurs that attribute their business collapse to tax problems do not come from disadvantageous background. Instead, the average entrepreneur in the bankruptcy sample that has faulted tax problems for his financial woes was typically older male, White, native born, well educated and an experienced business owner. Nonetheless, the typical entrepreneur with tax problem in the bankruptcy sample was facing enormously higher debt burden with more than five times as much debts as other entrepreneurs in the bankruptcy sample.

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