Statutory Speed Bumps: The Roles Third Parties Play in Tax Compliance

51 Pages Posted: 12 Apr 2007 Last revised: 28 Jun 2013

See all articles by Leandra Lederman

Leandra Lederman

Indiana University Maurer School of Law


Recent legal and economic scholarship has recognized that the government can use structural systems as an efficient way to reduce prohibited behavior. The federal tax system employs structural mechanisms, such as withholding taxes, to foster compliance. The use of structural systems to reduce tax evasion need not be limited to tax administration, however. The Article argues that substantive federal income tax law can - and in many contexts does - foster compliance by harnessing the structural incentives of third parties. Although this phenomenon has gone largely unnoticed, third parties are routinely used by the tax system to verify the bona fides of taxpayer claims in diverse contexts involving reimbursed amounts and other receipts. Yet, third parties do not always behave in ways that are helpful for tax enforcement. The Article therefore identifies contexts in which a third party may have an incentive to collude with the taxpayer. The Article argues that these contexts are ones that the government needs to scrutinize closely and, in certain cases, obstruct with legislation. By contrast, the government can afford to free ride on the incentives of a third party in contexts in which the transfer of funds from the third party to the taxpayer is a zero-sum game.

Keywords: tax compliance, tax evasion, tax shelters, structural systems, third parties

JEL Classification: H21, H24, H26, K34, K42

Suggested Citation

Lederman, Leandra, Statutory Speed Bumps: The Roles Third Parties Play in Tax Compliance. Stanford Law Review, Vol. 60, p. 695, 2007, Indiana Legal Studies Research Paper No. 78, Available at SSRN:

Leandra Lederman (Contact Author)

Indiana University Maurer School of Law ( email )

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Bloomington, IN 47405
United States
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