Paul L. Caron

Sunday, March 3, 2019

Lederman: The Fraud Triangle And Tax Evasion

Leandra Lederman (Indiana), The Fraud Triangle and Tax Evasion:

The “fraud triangle” is the preeminent framework for analyzing fraud in the accounting literature. It is a theory of why some people commit fraud, developed out of studies of individuals, including inmates convicted of criminal trust violations. The three components of the fraud triangle are generally considered to be (1) an incentive or pressure (usually financial), (2) opportunity, and (3) rationalization.

There is a separate, extensive legal literature on tax compliance and evasion. Yet the fraud triangle is largely absent from this legal literature, although tax evasion is a type of fraud. This article rectifies that oversight, analyzing how the fraud triangle—and its expanded version, the “fraud diamond”—can inform the legal literature on tax compliance. The article argues that the fraud triangle can provide a frame that brings together distinct tax compliance theories discussed in the legal literature, the traditional economic (deterrence) model and behavioral theories focusing on such things as social norms or tax morale.

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The Lederman paper mentions "opportunity for evasion". In the United States, there is likely no greater opportunity than self-reporting of income (as opposed to third-party reporting by employers of workers who receive wages or salaries). Do self-reporters take advantage of this opportunity? They do, and hugely, as this article points out:

Posted by: Gerald Scorse | Mar 3, 2019 3:31:24 PM