Apartments in the 400 million won range also subject to source of funds investigation

This buyer was investigated even with a 200 million won loan included, demonstrating that a lower home price does not exempt one from a source of funds investigation.

The key criterion for selecting an investigation target is an imbalance between income and expenditure. If the home purchase amount is deemed excessive compared to the buyer's income level, the National Tax Service will conduct a source of funds investigation.

These two investigations are conducted separately with their own objectives but can be interrelated.

A source of funds investigation is a process to confirm the transparency of legitimate fund operations, so there is no need to fear the investigation itself if funds were acquired through legitimate means. However, one must be thoroughly prepared and wary of the possibility of the investigation expanding into a tax audit.

First, cases where funds were procured by receiving undeclared gift amounts from parents. Second, cases where self-employed individuals acquire excessive assets or have high consumption compared to their declared income.

In particular, if there are substantial deposits without regular income-generating activities, the National Tax Service will demand a clear explanation of the source of those funds and use it as an investigation point.

This system analyzes major expenditures, such as real estate acquisitions or car purchases, by comparing them with declared income.

If an inconsistency is found between income and expenditure, the National Tax Service identifies it as a suspicion and uses it as a key basis to initiate a source of funds investigation.

While there may be differences in judgment among investigation officials, the PCI system alone does not flag a high savings rate as problematic.

This is because while the PCI system analyzes income and expenditures, it does not directly show the flow of funds from others, such as parents' credit card usage.

If savings are excessively high compared to actual take-home pay, or credit card usage is too low, the National Tax Service may suspect the source of those funds. This is because it could appear that even basic expenditures, such as essential utility fees, are not being processed with a card.

Such a pattern could ultimately be judged as omitted income or a gift from parents or other individuals.

Like a personal case of a tax accountant who earned 50 million won a year but had 45 million won in credit card spending, a lifestyle pattern that consumes most of one's income can be grounds for judging that it is difficult to acquire high-value assets without an inflow of other funds.

Even if one spouse has low income, they can utilize savings held from the past or consider the marriage gift tax exemption received at the time of marriage.

Through these methods, one can legitimately secure funding sources needed to explain the source of funds and reduce tax burdens.

If deposits are deemed excessive compared to income, suspicion regarding the source of funds may arise from the National Tax Service. If you hold deposits worth 1 billion won, you must clearly explain the source of those deposits.

It is advantageous to not merely submit deposit details in the fund procurement plan, but to also attach relevant transaction statements in advance if the deposits were formed from other assets such as cryptocurrency or stock profits. By voluntarily submitting relevant supporting documents, taxpayers can reduce the investigator's suspicion and increase the efficiency of the investigation, thereby increasing the likelihood of being excluded from investigation targets.

In other words, when submitting explanatory materials, one should not give an impression of being overly defensive or trying to conceal something.

Rather than fearing overreaction during the explanation process, presenting clear, fact-based data to remove any room for misunderstanding is a realistic way to avoid tax investigations.

Even if the National Tax Service does not request supporting documents, taxpayers can attach them themselves to resolve unnecessary misunderstandings. In this case, the purpose of submitting the explanatory materials must be clearly stated.

This emphasizes that it is a defensive mechanism to protect the taxpayer and clearly communicates the intent of submitting the data to prevent misunderstandings in advance.

First, the child who borrowed the funds must have the ability, i.e., income, to repay the principal and interest. Second, a loan agreement must always be prepared, and it is important to clearly prove the date of creation through notarization, certified mail, or a confirmed date.

Third, the principal must actually be repaid. It is essential that the repayment plan is specific and actually implemented.

If it is determined that there is no ability to repay the borrowed funds, the borrowed funds may be considered a gift, resulting in gift tax being imposed or leading to an additional tax investigation. Even if the borrowed funds are repaid, the tax office may ask what money was used for repayment, so preparation is needed to explain the source of the repayment funds as well.

Many tax professionals recommend repaying at least 1% of the principal annually.

Along with this, it is important to jointly explain the overall source of funds, including living expenses and credit card usage details, to prove actual repayment ability.

If a child's income tax rate is around 30%, paying an appropriate amount as gift tax can actually be a more tax-efficient method.

This means that paying gift tax may be more advantageous than paying income tax for the child, and investing the remaining funds after paying gift tax can be beneficial psychologically and tax-wise.

In real estate transactions between parents and children, low-price transactions up to 30% of the market value or 300 million won, whichever is less, do not incur gift tax issues. For example, if a property worth 1 billion won is traded for 700 million won, it falls within the legal range of low-price transfer.

However, when reporting capital gains tax, the transfer price should be reported as the market value of 1 billion won. Even if the acquisition price is reported as the actual purchase amount of 700 million won when reporting acquisition tax, the tax basis may be applied as the market value of 1 billion won. Furthermore, if the child sells this property later, the acquisition cost will be applied as the actual purchase amount of 700 million won, which can be disadvantageous when calculating capital gains tax, so caution is advised.

Once a tax audit by the National Tax Service begins, not only real estate acquisition funds but also credit card payment details within the audit period (e.g., 3 or 5 years) are all checked. Explanations for all fund flows, including bank deposit details, are requested, and it is true that all financial data is gathered by the National Tax Service.

In particular, when a source of funds investigation begins, the National Tax Service first activates its account inquiry rights to secure all financial transaction details of the taxpayer.

If special suspicions are found, the investigation may extend to the family of the investigated person or their family members' businesses.

Therefore, even if clear explanatory materials are submitted, it is crucial to consult sufficiently with a tax expert before submitting them carefully. This helps reduce the risk of unnecessary expansion of the investigation.