TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Saturday, December 29, 2018

Lederman: Tax Evasion And The Fraud Diamond

LedermanLeandra Lederman (Indiana), Tax Evasion and the Fraud Diamond:

There is an extensive set of literatures on tax compliance and evasion, often discussing the traditional economic model (the deterrence model) and/or behavioral theories such as social norms or tax morale. (For recent examples summarizing the theories, see this article by Kathleen Delaney Thomas [The Psychic Cost of Tax Evasion, 56 B.C. L. Rev. 617 (2015)], this one by Adam Thimmesch [Testing the Models of Tax Compliance: The Use-Tax Experiment, 2015 Utah L. Rev. 1083], or this one by yours truly [Does Enforcement Reduce Voluntary Tax Compliance?, 2018 BYU L. Rev. ___].) There is also a separate accounting literature on fraud.

A key concept in this accounting literature is the “Fraud Triangle.” Yet despite the important role this theory plays within the accounting literature, the Fraud Triangle does not seem to have permeated the tax compliance literature, particularly the relevant legal literature. ...

The bottom line is that the Fraud Triangle and Fraud Diamond theories may assist the understanding of tax evasion, which, after all, is a type of fraud. For example, the Fraud Triangle/Diamond supports the idea that opportunity is a critical factor in tax evasion (but not the only factor). It may also help suggest a mechanism by which other factors, such as the taxpayer’s view of government (p.75), may affect the taxpaying decision. For example, a belief that the government or tax system is unjust or inequitable could be part of the “rationalization” prong by which someone justifies evasion. This set of issues likely warrants further study. In addition, the usefulness of theories on tax fraud to the understanding of tax evasion underscores the value of the criminology and accounting literatures to the study of tax compliance and evasion.

https://taxprof.typepad.com/taxprof_blog/2018/12/lederman-tax-evasion-and-the-fraud-diamond.html

Scholarship, Tax | Permalink

Comments

Joshua Blank's "Overcoming Overdisclosure: Toward Tax Shelter Detection" presented at a 2009 IRS Research Conference said "frequent newspaper stories of tax shelter activity may decrease overall taxpaying morale and, in turn, tax compliance, as taxpayers who do not use shelters feel like “chumps” for paying more taxes
than necessary."

Posted by: Anand Desai | Jan 1, 2019 3:21:16 PM