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Owner Of Japanese Restaurant Found Guilty Of Tax Crimes

March 29, 2012

SAN FRANCISCO – Michael Chen was convicted by a federal jury Tuesday of filing false federal corporate income tax returns with the IRS and mail fraud for filing false sales tax returns with the California Board of Equalization, United States Attorney Melinda Haag announced.

The jury found that Chen filed a false 2004 U.S. Income Tax Return for an S Corporation (Form 1120S) for his restaurant, Fune Ya Japanese Restaurant, failed to file corporate income tax returns for Fune Ya Japanese Restaurant for 2005 and 2006, filed nine false Employer’s Quarterly Federal Tax Returns (Forms 941) with the IRS, and used the U.S. mail to file nine false quarterly Sales and Use Tax Returns with the California Board of Equalization. The guilty verdicts followed a five day jury trial before U.S. District Court Judge Maxine Chesney.

Evidence at trial showed that Chen, of San Francisco, maintained detailed records of Fune Ya’s daily receipts in twenty-six boxes marked “Seasoned Octopus.” The boxes were stored in a crawl space beneath the restaurant floor. The cash sales shown on Fune Ya’s receipts were not reported to the IRS. The evidence also showed that Chen maintained an encrypted Excel spreadsheet documenting $1,910,803 in sales, while he reported $450,165 in sales to the California Board of Equalization, and $65,738 in sales to the IRS. Chen also paid Fune Ya employees cash wages totaling $548,919 for the 2004 - 2006 tax years. Employees received cash payments in white envelopes each payday. Chen failed to include these cash payments on the quarterly payroll tax returns (Forms 941) filed with the IRS.

Chen was indicted by a federal grand jury on Dec. 31, 2009. He was charged with filing a false 2004 U.S. Income Tax Return for an S Corporation (Form 1120S) for Fune Ya Japanese Restaurant; for failure to file U.S. Income Tax Returns for an S Corporation (Form 1120S) for Fune Ya for 2005 and 2006; for filing false Employer’s Quarterly Tax Returns (Forms 941) for nine quarters beginning with the fourth quarter of 2004 through the fourth quarter of 2006; and filing false Sales and Use Tax Returns with the California Board of Equalization for these same nine quarters.

The sentencing of Chen is scheduled for July 11, 2012, before Judge Maxine Chesney in San Francisco. The maximum statutory penalty for each count of filing false tax returns in violation of 26 U.S.C. §7206(1) is three years and a fine of $100,000, plus restitution, if appropriate. However, any sentence following conviction would be imposed by the court after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. § 3553.

Cynthia Stier and Damali Taylor are the Assistant U.S. Attorneys who prosecuted the case with the assistance of Kathy Tat and Ed Solis. The prosecution is the result of an investigation by the Internal Revenue Service.

(Chen indictment )









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