Choice "B" is correct. Imposition of the civil fraud penalty requires conduct that transcends negligence or stupidity. Maintaining false records and reporting fictitious transactions is adequate to demonstrate civil fraud, a willful and deliberate attempt to evade taxes.
Choice "d" is incorrect. Negligence such as omitting income as a result of inadequate recordkeeping will support a penalty, but not the civil fraud penalty.
Choice "c" is incorrect. Failing to report income erroneously considered not to be part of corporate profits will support a penalty, but not the civil fraud penalty.
Choice "a" is incorrect. Filing an incomplete tax return will support a penalty, but not the civil fraud penalty.