The Fraud Triangle and Tax Evasion
Indiana Legal Studies Research Paper No. 398, 106 IOWA L. REV. __ (forthcoming 2021)
55 Pages Posted: 28 Feb 2019 Last revised: 2 Apr 2021
Date Written: February 22, 2019
The “fraud triangle”—a theory of why people commit fraud—is the preeminent framework for analyzing fraud in the accounting literature. It developed out of studies of fraudsters, including inmates convicted of embezzlement. The three components of the fraud triangle are (1) an incentive or pressure (usually financial), (2) opportunity, and (3) rationalization.
There is a separate, extensive legal literature on tax compliance and evasion. 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 using the fraud triangle as a lens can inform the legal literature on tax compliance. In addition, the Article argues that the fraud triangle can provide a conceptual frame that provides a place for two distinct types of tax compliance theories discussed in the legal literature: the traditional deterrence model and certain behavioral theories.
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: Suggested Citation