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outstanding invoices in 1998, and was having trouble making
payments to PCTI. He then transferred another $130,000 from the
Beam account into Mrs. Chen’s personal account. She in turn
signed checks totaling $80,000 from her account to PCTI, only to
receive the money back from PCTI a few days later. She gave the
other $50,000 to Mr. Chen to cover some of his gambling losses.
(The Chens credibly testified that Mr. Chen had a severe gambling
compulsion.)
The Chens used an accounting firm, Chang Accountancy Corp.,
to prepare both their own and PCTI’s 1998 tax returns. Mr. Chen
did not disclose PCTI’s receipt of the Chubb insurance proceeds
to Chang, so the $287,000 in proceeds was not reported on PCTI’s
return and did not flow through to the Chens’ own joint return.
Chubb grew suspicious and began an investigation, eventually
referring the matter to law enforcement. In March 2001, Mr. Chen
pleaded guilty to money laundering and filing a false tax return;
likewise, Mrs. Chen pleaded guilty to wire fraud, aiding and
abetting Mr. Chen’s crime, and filing a false tax return. In
their plea agreements, the Chens agreed to pay $287,000
restitution to Beam Technology, and they paid $40,000 of the
deficiency owed to the IRS. The Commissioner determined a
deficiency based on the Chens’ failure to include the proceeds of
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Last modified: May 25, 2011