One Law Partners, LLC represented a taxpayer who had been denied the one-household, one-home capital gains tax exemption and assessed approximately KRW 280 million in capital gains tax. Through a Tax Tribunal appeal, the firm successfully obtained an ex officio revocation of the assessment by the tax authority, thereby eliminating the client's tax burden.

1. Overview of the Matter
The client, A, sold a residential property previously owned and reported the transaction on the basis that the requirements for the one-household, one-home capital gains tax exemption had been satisfied.

However, the tax authority determined that A owned an additional residential property that had been acquired through a transaction between family members at the time the original property was sold and therefore concluded that A was the owner of two homes.

The tax authority denied the exemption on the grounds that A had failed to satisfy the household relocation requirements necessary to qualify for the temporary two-home exemption and consequently assessed approximately KRW 280 million in capital gains tax.

The client, on the other hand, maintained that the acquisition of the additional property from a family member was not intended to transfer actual ownership but was merely a nominal transaction carried out temporarily due to debt-related issues involving a family member.

In particular, the property was transferred again into the name of another family member within a short period of time, and A asserted that A neither paid the purchase price nor actually acquired beneficial ownership of the property.

Accordingly, the client retained One Law Partners, LLC to file a Tax Tribunal appeal seeking cancellation of the capital gains tax assessment.

2. Key Issues
The first issue was whether the residential property sale agreement between family members constituted a genuine transfer of ownership or a sham transaction involving a nominal transfer of title.

Article 108 of the Korean Civil Act provides that a false declaration of intent made by agreement between the parties is void.

Accordingly, it was necessary to examine not only the form of the sale agreement and title registration but also the actual purpose of the transaction and the party that bore the economic burden of the purchase in determining the true nature of the transaction.

The second issue was whether the mere fact that the client was listed as the legal owner of the property was sufficient to classify the client as the owner of two homes and deny the capital gains tax exemption.

Even where an individual is registered as the owner of a residential property, the question was whether the number of homes owned and eligibility for tax exemption should be determined under the substance-over-form principle if a different person was the actual beneficial owner.

In particular, if the transfer between family members constituted a sham transaction, the key issue was whether A should be regarded as having owned only the original residence in substance and therefore qualified for the one-household, one-home exemption.

3. Key Strategies and Actions
One Law Partners first analyzed the acquisition and subsequent transfer of the residential property among family members and focused on demonstrating that the transaction was merely a nominal transfer rather than a genuine sale.

To support this argument, the firm comprehensively reviewed the real estate sale agreement, land registry records, family relation certificates, and relevant financial transaction records.

In particular, the firm confirmed that the funds deposited into and withdrawn from the client's account during the transaction were identical and emphasized that the purchase funds had in fact been provided by family members and that the client had not acquired the property using personal funds.

The firm also established that the transfer of title had been motivated by debt-related issues involving a family member and submitted relevant court judgments and court orders as evidence.

Based on these facts, One Law Partners argued that the transaction constituted a sham transaction under Article 108 of the Civil Act and that, under the substance-over-form principle, the client should not be treated as the owner of two homes solely on the basis of a nominal title transfer.

The firm further reviewed Supreme Court precedents and Tax Tribunal decisions and argued that, even where an individual appears to own multiple homes due to a nominal title arrangement, eligibility for the one-household, one-home exemption must be determined based on the actual ownership relationship.

The tax authority argued that the transaction was a legitimate sale, citing the involvement of a licensed real estate broker and the payment of related taxes. One Law Partners successfully rebutted this position by demonstrating that such external formalities alone could not establish a genuine transfer of beneficial ownership.

Based on these factual and legal arguments, the firm filed a Tax Tribunal appeal and submitted comprehensive briefs supported by documentary evidence and relevant precedents seeking cancellation of the assessment.

As a result, while the Tax Tribunal proceedings were ongoing, the tax authority exercised its authority to revoke the approximately KRW 280 million capital gains tax assessment in its entirety.

Following the revocation, the Tax Tribunal dismissed the appeal on procedural grounds because the challenged assessment no longer existed.

As a result, the client was relieved of the obligation to pay the previously assessed capital gains tax.

4. Significance of the Matter
This case demonstrates that, even where a taxpayer appears to own multiple homes due to intra-family real estate transactions, the legality of a capital gains tax assessment may be challenged through a detailed examination of the actual ownership relationship and the economic substance of the transaction.

In particular, One Law Partners analyzed complex financial transactions and changes in property ownership, relying on court judgments, Supreme Court precedents, and Tax Tribunal decisions to advance a legal strategy grounded in the substance-over-form principle.

As a result of these efforts, the tax authority voluntarily revoked its original assessment, enabling the client to eliminate approximately KRW 280 million in tax liability.

This case is significant because it demonstrates that, even without a favorable merits decision from the Tax Tribunal, a taxpayer may achieve meaningful relief through the tax authority's ex officio revocation of an assessment during the appeal process, thereby effectively protecting the taxpayer's rights and interests.


-
Byoung-Joo Kim, Attorney | bjkim@onelawpartners.com
Chan-Woo Chung, Advisor | cwchung@onelawpartners.com
-
Public Relations Team, One Law Partners, LLC | pr@onelawpartners.com