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Inheritance Tax, Gift Tax, and Tax Audit Response Methods: A Comprehensive Guide

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1. Key Deduction Systems to Reduce Inheritance Tax

• Utilizing the Co-residence Housing Inheritance Deduction

  • If a child (adult) has co-resided with their parents for more than 10 years, a maximum deduction of 600 million KRW is possible when inheriting the house.
  • However, both the parents and the child must meet the 1 household, 1 housing requirement.
  • Hasty purchases of additional housing can invalidate the deduction requirements.

• Requirements for Business Succession Deduction

  • In the case of inheriting a business, it is essential to meet the requirements over a long period in advance.
  • Essential Condition: The deduction is available when the business history of the deceased and the requirements of the inheritor are aligned.
  • If proceeded without prior preparation, the available inheritance deductions will be limited.

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2. Major Types and Targets of the National Tax Service Tax Audits

• Regular and Irregular Audits

  • Regular Audits: Conducted every 5 to 10 years; almost all large companies or individuals are subject to this.
  • Irregular Audits: Initiated when there are specific suspicions such as tax evasion, use of nominee accounts, or unclear sources of funds.

• Issues Related to Gifts and Inheritance That the National Tax Service Focuses On

  • The higher the value of the inherited property, the higher the probability of a tax audit.
  • Investigation of Funding Sources: If a large amount of money is gifted from parents and the source is not adequately explained, it can become the target of a gift tax audit.

• Adverse Effects of Inheritance Disputes and Reports Among Siblings

• If a report is filed among siblings during the inheritance process, the entire family may be jointly liable for the tax payment.

• Since inheritance tax must be paid jointly by all inheritors, the reporter will also have tax liabilities.

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3. How to Avoid or Respond to Tax Audits

• Incorrect Methods to Avoid Tax Audits

  • Requesting intervention from the tax office through personal connections may backfire.
  • If the audited party excessively shares the audit details with others, the information may be leaked.

• Effective Tax Audit Response Methods

  1. Stay Calm Immediately After Receiving the Notification:
     • Avoid panicking or notifying numerous people upon receiving the audit notification.
  2. Understand the Background of the Audit:
     • Determine if it is a regular audit or one triggered by a specific suspicion.
     • If it is a regular audit, prepare step by step without being overly alarmed.
  3. Cooperate with Tax Professionals:
     • Collaboration between the internal accounting manager, who knows the funds in question best, and a tax accountant is essential.
     • Excuses or attempts to hide facts can worsen the audit process.
  4. Prepare Accurate Documents and Proof:
     • Prepare for potential issues, such as funding sources and expense proof.
     • Tax audits for celebrities or influencers often stem from lack of evidence.

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4. Tax Audits for Small and Medium Enterprises and Large Corporations

• Reasons Why Companies Become Tax Audit Targets

  • Small and medium-sized enterprises and large corporations are more likely to be audited due to large-scale transactions and borrowings.
  • Regular audits are generally conducted every 5 to 10 years.

• Tips for Response

  1. Clearly analyze the reasons for the audit.
  2. Comprehensively check the company's tax issues in the early stages of the audit.
  3. Rather than attempting to handle everything on their own, the representative should systematically discuss countermeasures with their tax accountant.

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5. Sharing a Philosophy for Tax Reduction

• Family disputes arising from inheritance and gifts are a significant loss in the long run.
• It's important to have "a mindset of receiving less" to minimize not only tax issues but also the complexities of family relationships.

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< Summary >

• Inheritance Deduction: Up to 600 million KRW can be deducted through the co-residence housing inheritance deduction, and meeting the conditions in advance is key for the business succession deduction.
• Tax Audit Types: Regular audits are conducted periodically, while irregular audits are triggered by specific causes like tax evasion suspicions.
• Response Methods: Analyzing the reasons for the audit and cooperation with experts are important. Preparing evidential materials and not disclosing it to others are essential.
• Company and Personal Management: Regular internal checks and record-keeping allow for quick responses during audits.

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[More…]

1. 5 Practical Strategies to Reduce Inheritance Tax
   https://nextgeninsight.net/?s=%EC%83%81%EC%86%8D%EC%84%B8

2. National Tax Service Audit Response Methods: 7 Tips to Avoid Failure
   https://nextgeninsight.net/?s=%EC%84%B8%EB%AC%B4%EC%A1%B0%EC%82%AC

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