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the fraud in their reported income. He also determined a fraud
penalty under section 6663.1
The Chens contest both the deficiency and the penalty. Mrs.
Chen also asserts as a defense that she is an innocent spouse, on
the grounds that she could not communicate in English; had
nothing to do with the 1998 tax return other than signing the
return; wrote checks only at Mr. Chen’s direction; and did not
benefit from the additional income. The Commissioner denied her
request as inconsistent with her signed plea agreement, in which
she had admitted participating in her husband’s fraudulent
scheme. Mrs. Chen believes the Commissioner abused his
discretion in denying her request for innocent spouse relief.
Both Chens also assert a statute-of-limitations defense.
The Commissioner admits that he sent the notice of deficiency
more than three years after they filed their 1998 tax return, but
argues that the Chens’ fraud makes the notice of deficiency
valid.
The Chens also argue that even if they did commit fraud, the
amount of their understatement is exaggerated by the IRS. They
argue that PCTI was already taxed on a portion of the proceeds,
and argue as well that if the fraudulently obtained proceeds are
no longer applied to the Citirom account receivable, that account
1 Section references are to the Internal Revenue Code; Rule
references are to the Tax Court Rules of Practice and Procedure.
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Last modified: May 25, 2011