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both Chens pleaded guilty to a variety of crimes. Neither PCTI
nor the Chens reported the proceeds of the fraud as income. The
Chens contest the resulting deficiency and fraud penalty. Mrs.
Chen seeks innocent spouse relief.
Background
The Chens came to the United States in 1985 from Taiwan,
where Mr. Chen had graduated from college and earned master’s
degrees in civil engineering and architecture. He had taught
high school for 20 years in Taiwan, but after immigrating he
switched fields and worked for his brother’s computer business.
In 1991, he started up his own firm and began wholesaling
computer parts under the name PC Team. Within two years, he
incorporated that business as PCTI. He was PCTI’s sole
shareholder and its president, and he named Mrs. Chen vice
president and administrator. She worked at PCTI full time,
managing the company’s inventory and running the business when
Mr. Chen was away. She had full authority to sign checks and tax
returns on behalf of PCTI, though the parties stipulated that she
does not read, write, or speak English.
PCTI made a valid S corporation election in 1995 and was
still an S corporation in 1998, the tax year at issue. Its
accounting system was not complex--Mr. Chen simply dictated the
company’s financial transactions to Bo Hua He, PCTI’s in-house
accountant. Ms. He also prepared many of the checks for the
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