Lawsuit to Cancel Gift Tax for 'Reward for Caring for Younger Sibling'... Court Rules "Not Recognized"

A couple who purchased an apartment from a younger sibling suffering from a mental illness and received part of the payment back filed a lawsuit claiming that the money was received as compensation for caring for their sick sibling and therefore they could not pay gift tax, but they lost the case.

According to the legal community on the 1st, the Administrative Court 4th Division of the Seoul Administrative Court (Chief Judge Kim Jeong-jung) recently ruled against the plaintiffs in a lawsuit filed by Mr. A and his spouse against the Banpo Tax Office head seeking cancellation of a gift tax imposition.

Mr. A’s younger sibling, Mr. B, transferred an apartment located in Seocho-gu, Seoul, to Mr. A and his spouse and Mr. A’s son in 2012 for 875 million KRW. Mr. B transferred a total of 279.18 million KRW of the received payment back to Mr. A and his spouse. Mr. B, who suffered from a mental illness, later passed away in 2017.

The tax authorities determined that the money Mr. A and his spouse received from their sibling constituted an advance gift and issued a gift tax notice of approximately 65 million KRW to the couple. Mr. A and his spouse opposed this and filed an administrative lawsuit.

The couple argued, “We not only bore the hospital bills, medication costs, and living expenses of our sibling but also paid the apartment’s jeonse deposit on their behalf, and the money received was a settlement of these expenses,” claiming that the tax authorities’ decision had a 'substantive defect.'

They also claimed, “The decision treating the money as a gift without giving the plaintiffs sufficient opportunity to explain is illegal.” They argued there was also a 'procedural defect' because the tax authorities did not provide a pre-taxation notice.

The court ruled in favor of the tax authorities. The court stated, “Mr. A and his spouse must prove that they bore Mr. B’s hospital bills and returned the jeonse deposit on his behalf,” and “the submitted medical payment receipts alone are insufficient to recognize these facts.”

Furthermore, the court stated, “The claim that the pre-taxation notice must be issued by the head of the competent tax office who imposed the tax is clearly contrary to the Framework Act on National Taxes, which does not limit the subject of the pre-taxation notice to the head of the competent tax office, and thus cannot be accepted.”

This content was produced with the assistance of AI translation services.