Owner Of Japanese Restaurant Receives 33-Month Prison Sentence For Tax Crimes

SAN FRANCISCO – Michael Chen, the owner of Fune Ya Japanese Restaurant in San Francisco was sentenced yesterday to 33 months in prison and ordered to pay restitution in the amount of $459,105 for filing false federal corporate income tax returns with the Internal Revenue Service (IRS), and mail fraud for filing false sales tax returns with the California Board of Equalization, United States Attorney Melinda Haag and Internal Revenue Service Criminal Investigation (IRS-CI) Special Agent in Charge Jose M. Martinez announced.

During a five day jury trial in March, 2012, a federal jury found that Michael 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. Evidence at trial showed that Chen 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 through 2006 tax years. Employees received cash wages in white envelopes each payday. Chen failed to include these cash wages on the quarterly payroll tax returns (Forms 941) filed with the IRS.

Chen was convicted by a jury on March 27, 2012. The sentence was handed down by U.S. District Court Judge Maxine Chesney following a jury trial on 10 counts of filing false tax returns in violation of 26 U.S.C. Section 7206(1); two counts of failure to file tax returns in violation of 26 U.S.C. Section 7203; and nine counts of mail fraud in violation of 18 U.S.C. Section 1341. Judge Chesney also sentence the defendant to a three-year term of supervised release. The defendant is scheduled to self-surrender and begin serving his sentence on March 27, 2013.

Cynthia Stier and Damali Taylor are the Assistant U.S. Attorneys who prosecuted the case. The prosecution is the result of an investigation by the Internal Revenue Service, Criminal Investigation.