The Fraud Triangle and Tax Evasion

55 Pages Posted: 28 Feb 2019

See all articles by Leandra Lederman

Leandra Lederman

Indiana University Maurer School of Law

Date Written: February 22, 2019

Abstract

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.

Keywords: fraud triangle, fraud diamond, tax evasion, tax fraud, white-collar crime, Donald Cressey, Edwin Sutherland, Svend Riemer, deterrence, fraud, opportunity to evade, tax noncompliance, tax compliance

JEL Classification: K29, K34, K42, M42

Suggested Citation

Lederman, Leandra, The Fraud Triangle and Tax Evasion (February 22, 2019). Indiana Legal Studies Research Paper No. 398. Available at SSRN: https://ssrn.com/abstract=3339558 or http://dx.doi.org/10.2139/ssrn.3339558

Leandra Lederman (Contact Author)

Indiana University Maurer School of Law ( email )

211 S. Indiana Avenue
Bloomington, IN 47405
United States
(812) 855-6149 (Phone)
(812) 855-0555 (Fax)

HOME PAGE: http://www.law.indiana.edu/people/lederman

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