The recent Tax Court Memorandum in Remus Beleiu and Naomi J. Beleiu v. Commissioner of Internal Revenue, T.C. Memo. 2025-70, offers crucial insights for tax professionals concerning the imposition of civil fraud penalties under Internal Revenue Code (I.R.C.) Section 6663(a). This case highlights the rigorous standard applied by the Commissioner and the Tax Court in establishing fraudulent intent, particularly when a taxpayer possesses a strong financial and accounting background.

Factual Background

The petitioners, Remus Beleiu and Naomi J. Beleiu, resided in Ohio when they filed their petition. Mr. Beleiu owned and operated Remtrix LLC, an information technology business, from 2012 to 2015, and ITrainX Consulting Group from 2013 to 2015. While Remtrix’s business operations were reported on Schedule C forms attached to the Beleius’ timely filed joint tax returns for 2012-2015, the operations of ITrainX were not reported.

Mrs. Beleiu, a member of Remtrix, served as the recordkeeper for both Remtrix and ITrainX and had signatory authority on their bank accounts. Notably, she holds an undergraduate degree in accounting and a Master of Business Administration (M.B.A.) with a concentration in accounting. Her primary occupation during the years at issue (2012-2015) was as a financial analyst for University Hospitals System, earning wages substantially higher than Remtrix’s reported income. Mrs. Beleiu prepared and timely filed the joint Form 1040s for the years at issue, but she did not maintain contemporaneous accounting records for either entity. Instead, she prepared the returns from "piles of paperwork" consisting of bank statements, invoices, and expense receipts.

The reported gross income from Remtrix on Schedule C was:

2012: $10,505 (net profit $2,180).
2013: $38,946 (net profit $30,506).
2014: $43,000 (net profit $37,400).
No Schedule C was filed for ITrainX for any year.

The Internal Revenue Service (IRS) selected the Beleius’ 2012, 2013, and 2014 returns for examination, conducted by Tax Compliance Officer (TCO) Nancy O’Haire. During the initial meeting on January 26, 2016, Mrs. Beleiu provided incomplete bank statements for their joint checking account and Remtrix’s bank account, but none for individually held accounts or ITrainX. She also provided Remtrix income statements and Forms 1099-MISC and 1099-K, but no documentation for reported expenses. Mrs. Beleiu initially claimed ITrainX was a dormant business with no income in 2013 or 2014.

Significant discrepancies emerged during the examination:

For 2013, the reported gross income of $38,946 on Remtrix’s Schedule C did not align with the gross sales of $203,033 on Remtrix’s income statement or the total $275,132 from Forms 1099-MISC and 1099-K. Additionally, a $6,780 deduction for "Car and truck expenses" was double-counted.
For 2014, the reported gross income of $43,000 on Remtrix’s Schedule C did not match the gross sales of $149,577 on the income statement or the $150,127 from Forms 1099-MISC and 1099-K for Remtrix, nor the $71,250 for ITrainX.
Following a second meeting where Mrs. Beleiu provided amended, but still incomplete, Schedules C and no additional bank statements, TCO O’Haire issued summonses for all bank statements from J.P. Morgan Chase and U.S. Bank. A bank deposits analysis revealed substantial understatements of income for Remtrix:
- 2012: Reported $10,505, Bank Deposits $208,221 (Difference $197,716).
- 2013: Reported $38,946, Bank Deposits $334,064 (Difference $295,118).
- 2014: Reported $43,000, Bank Deposits $239,789 (Difference $196,789).
The analysis also uncovered significant cash dealings, with deposits of $39,249 in 2012 to the joint checking account, over $17,000 in 2013 to Remtrix’s account, and at least $21,600 in 2014 to ITrainX’s account. Furthermore, third-party reporting for ITrainX’s EIN revealed receipts of $38,600 for 2013 and $71,250 for 2014, directly contradicting Mrs. Beleiu’s assertion of it being a dormant business.

The Dispute and Concessions

The Commissioner initially proposed federal income tax deficiencies and civil fraud penalties under Section 6663 for 2012-2015, along with a Section 6654(a) addition to tax for 2015. The Beleius agreed to the underlying tax deficiencies. However, the Commissioner later conceded the proposed Section 6663 civil fraud penalty for 2015 due to failure to obtain managerial approval under Section 6751(b), as well as the Section 6654(a) addition to tax for 2015. The parties also agreed that Mr. and Mrs. Beleiu were liable for accuracy-related penalties under Section 6662(a) for 2012-2014. Crucially, the Commissioner conceded that Mr. Beleiu was not liable for the civil fraud penalties for any of the years at issue.

The sole issue remaining for the Tax Court’s consideration was whether Mrs. Beleiu was liable for civil fraud penalties for tax years 2012, 2013, and 2014.

Legal Framework for Civil Fraud Penalties

Section 6663(a) imposes a penalty of 75% of the portion of any tax underpayment due to fraud. The Commissioner bears the burden of proving fraud by clear and convincing evidence. This is a high bar, requiring proof that:

There was an underpayment of tax for each year at issue.
At least some portion of the underpayment for each year was due to fraud.
- Hebrank v. Commissioner, 81 T.C. 640, 642 (1983).

If the Commissioner establishes that any part of an underpayment is attributable to fraud, then the entire underpayment is treated as attributable to fraud unless the taxpayer can prove, by a preponderance of the evidence, that the balance was not.

I.R.C. § 6663(b).

Fraud is defined as intentional wrongdoing designed to evade tax believed to be owing. The existence of fraud is a question of fact, determined from the entire record; it cannot be presumed or based on mere suspicion. However, direct proof of intent is rarely available, so fraudulent intent may be established through circumstantial evidence. The Commissioner satisfies the burden by showing the taxpayer intended to evade known taxes through conduct designed to conceal, mislead, or prevent tax collection. The taxpayer’s entire course of conduct, including a pattern of behavior, can infer the requisite intent.

Neely v. Commissioner, 116 T.C. 79, 86 (2001).
Estate of Pittard v. Commissioner, 69 T.C. 391, 400 (1977).
Petzoldt v. Commissioner, 92 T.C. 661, 699 (1989).
Parks v. Commissioner, 94 T.C. 654, 661 (1990).
Stone v. Commissioner, 56 T.C. 213, 224 (1971).

Courts frequently consider "badges of fraud," which are circumstantial indicators of fraudulent intent. While no single factor is dispositive, the presence of several is persuasive. The evaluation of these badges must also consider the taxpayer’s education and sophistication. Common badges include:

Understating income.
Keeping inadequate records.
Giving implausible or inconsistent explanations of behavior.
Concealing income or assets.
Failing to cooperate with tax authorities.
Engaging in illegal activities (neutral/against fraud finding).
Supplying incomplete or misleading information to a tax return preparer.
Providing testimony that lacks credibility.
Filing false documents (including false tax returns).
Failing to file tax returns (neutral/against fraud finding).
Dealing in cash.
- Schiff v. United States, 919 F.2d 830, 833 (2d Cir. 1990).
- Bradford v. Commissioner, 796 F.2d 303, 307–08 (9th Cir. 1986).
- Solomon v. Commissioner, 732 F.2d 1459, 1461–62 (6th Cir. 1984).
- Parks, 94 T.C. at 664–65.
- Recklitis v. Commissioner, 91 T.C. 874, 910 (1988).
- Morse v. Commissioner, T.C. Memo. 2003-332, 86 T.C.M. (CCH) 673, 675.
- Niedringhaus v. Commissioner, 99 T.C. 202, 211 (1992).
- Clark v. Commissioner, T.C. Memo. 2021-114, at 37.

The parties stipulated that written supervisory approval for the civil fraud penalties for 2012-2014 was timely secured, satisfying the requirement of Section 6751(b)(1).

Application of Law to Facts: Badges of Fraud

The Tax Court carefully analyzed Mrs. Beleiu’s conduct against each of the relevant "badges of fraud."

Understating Income A pattern of substantially underreporting income over several successive years is strong evidence of fraudulent intent. Mrs. Beleiu drastically underreported Remtrix’s Schedule C gross income:

2012: Reported only 5% of what should have been reported ($10,505 vs. $208,221).
2013: Reported only 12% ($38,946 vs. $334,064).
2014: Reported only 18% ($43,000 vs. $239,789). The Court found Mrs. Beleiu’s explanation—distraction due to her daughter’s behavioral issues and lack of time—not credible given the sheer magnitude of the underreporting. Prior case law similarly rejects being "too busy, too tired, or distracted" as reasonable explanations for grossly inaccurate income reporting.
- Zhadanov v. Commissioner, T.C. Memo. 2002-104, 83 T.C.M. (CCH) 1553, 1560.
- Isaacson v. Commissioner, T.C. Memo. 2020-17, at 48–49.
- Otsuki v. Commissioner, 53 T.C. 96, 109–110 (1969).
- Robleto v. Commissioner, T.C. Memo. 2008-195.