The Tax Times: Civil Fraud Penalties in Beleiu v. Commissioner: A Cautionary Tale for Tax Professionals

Monday, August 4, 2025

Civil Fraud Penalties in Beleiu v. Commissioner: A Cautionary Tale for Tax Professionals

The recent Tax Court decision in Beleiu v. Commissioner, T.C. Memo. 2025-70, is a powerful warning to taxpayers, especially those in the finance and accounting professions, about the consequences of underreporting income and failing to maintain proper records.

Background
Remus Beleiu ran Remtrix LLC and ITrainX Consulting Group, with his wife, Naomi J. Beleiu, a financial analyst with an accounting degree. While they reported income from Remtrix on their joint tax returns from 2012 through 2015, ITrainX’s income was not included on any return. The couple did not use any modern bookkeeping methods or maintain contemporaneous records, preparing their tax filings from loose paper records.

Audit Findings
The IRS selected their 2012–2014 returns for audit, revealing eye-popping discrepancies:

· In 2012, they reported just $10,505 in business income, while over $208,000 was deposited into their business accounts.

· In 2013, reported income was about $39,000 versus $334,000 in deposits.

· By 2014, they claimed $43,000, but bank records showed almost $240,000.

Additionally, Naomi claimed ITrainX was dormant during these years, but bank statements contradicted this, showing tens of thousands of dollars in business receipts. There were also problems such as double-counted deductions—a $6,780 car expense, for example, claimed twice in 2013.

The Court’s Ruling and Reasoning
The IRS imposed a 75% civil fraud penalty under Section 6663(a). For this penalty to stick, the government needs clear and convincing proof of intentional wrongdoing. In reviewing the facts, the Tax Court found overwhelming evidence of fraud, checking nearly every “badge of fraud” in the book:

· Massive understatement of income: Reporting just a tiny fraction of receipts.

· No real accounting records: The couple only kept disorganized paper statements, despite Naomi’s accounting background.

· Implausible excuses: Naomi argued she confused net and gross income, a claim the Court simply didn’t buy.

· Concealment: She hid information about ITrainX and even excluded accounts from information given to their own advisors.

· Lack of cooperation: During the audit, the Beleius gave incomplete and misleading records to both the IRS and their own representatives.

· False or inconsistent testimony: The Court found Naomi’s explanations at trial bizarre and unbelievable.

· Questionable cash deposits: Significant unexplained cash moved through their accounts each year.

The Court concluded that Naomi, with her accounting training, knew exactly what she was doing. The astonishing income discrepancies and repeated deception clearly indicated a willful attempt to cheat on their taxes. All in all, the only major “badges of fraud” not present were failing to file returns and engaging in illegal activities outside the tax context.

Key Takeaways

· The IRS and the Tax Court are particularly tough on tax professionals and financial experts who flout the rules.

· Deliberate understating of income, especially when backed by sketchy records and creative excuses, makes fraud penalties almost inevitable.

· Proper recordkeeping and honest reporting aren’t suggestions, but legal requirements.

· Cooperating fully and honestly during an IRS audit is crucial. Stonewalling or providing incomplete information only increases suspicion, and ultimately, liability.

In the end, the civil fraud penalty was upheld against Naomi J. Beleiu for all years at issue. Remus Beleiu was spared the fraud penalty, but liability for unpaid taxes remained. This case stands as a stark lesson: when it comes to taxes, expertise is not a shield, but careless or willful misreporting can be a shovel for digging deeper legal holes.

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