"If you don't know why you have to fill out the source of funds plan twice when buying an apartment in an area designated under the land transaction permit system, you are already as good as a target for a tax audit. In a market like now, where a 'tax time bomb' is ticking, buying without meticulous funding design can be poisonous."
On the 10th, at the office of the tax firm Rich in Seokchon-dong, Songpa District, Seoul, tax accountant Lee Jang-won, the firm's representative, emphasized "consistency of funds" throughout an interview with ChosunBiz. Lee noted that in prime areas such as Gangnam and Mayongseong (Mapo, Yongsan and Seongdong districts), there are signs that market participants are trying to avoid "punitive taxation." Lee analyzed that "real estate transactions will no longer be simple price competition but will transform into a war with taxes."
Tax accountant Lee warned that while end users looking for urgent sales from multiple-home owners have become busier, charging in based only on prices could expose them to a more daunting "tax risk."
Lee said, "Today's real estate transaction is not a simple administrative procedure but a high-level tax war," adding, "In particular, in areas under the land transaction permit system, writing the contract first without understanding the mechanics of the source of funds plan makes you a precision target for a tax audit."
Lee serves as a tax adviser to various hospitals and the Korean Medical Association and is a veteran tax accountant who has conducted thousands of practical consultations. He is regarded as a field practitioner who offers the sharpest analysis amid increasingly complex tax laws and tangled regulations. Through the YouTube channel "Toad Tax Accountant" (150,000 subscribers), he provides a range of real estate tax information on inheritance, gifts and transfers. The following is a Q&A with Lee.
-We hear many buyers of apartments subject to the land transaction permit system are being audited. Why is that?
"To purchase an apartment under the land transaction permit system, you must submit two different source of funds plans in stages. The first is an 'administrative review' to obtain ward office approval before signing the contract, and the second is for 'verification of funding sources' when filing the actual transaction after approval. If you enter rough figures in the first round to get approval and then write different funding sources (gifts, loans, etc.) in the second round, the National Tax Service's property-consumption-income analysis (PCI) system immediately recognizes this as a 'funding path change.' Cases are frequent in which newcomers to the workforce or buyers in their 30s write the first document thinking, 'Let's just get approval first,' only to trigger a tax audit."
-What is the riskiest case where a source of funds plan actually leads to a tax audit?
"Representative cases include when the purchase price is excessive relative to income, when family funds are involved but the distinction between gift and loan is ambiguous, when the structures of the first and second plans differ, or when business funds flow into purchasing dwellings. The National Tax Service does not simply store documents. It cross-checks income and consumption data in real time, so if explanations are lacking, an audit inevitably follows. For apartment transactions under the land transaction permit system, funding structure design must come before price analysis.
"The real estate market has fallen into confusion as the 'dual pricing of jeonse' widens the gap between renewed and new jeonse contracts under the Housing Lease Protection Act (right to request renewal, caps on rent increases, and mandatory reporting of rents), transactions are blocked by the land transaction permit system, and a capital gains tax time bomb has been added."
-Are many multiple-home owners choosing gifts because selling is difficult?
"Even looking only at the number of gift registrations for Seoul apartments, they have surged since the second half of last year. Gifts jumped from 1,171 in Aug. last year to 1,728 in Sep., and increased to 2,049 in Dec. In just four months, they nearly doubled. If heavier capital gains taxes return, the burden can rise by hundreds of millions of won compared with before, making gifts a reasonable alternative. But today's gifts are not the end; they are the start of an audit.
Cases frequently caught include doing a "gift with debt" by transferring the home with a loan attached, but parents quietly paying the child's loan interest or living expenses; writing documents that money was borrowed from parents, but the child's income clearly cannot cover the interest; or having no actual transfer records. The National Tax Service also uses automated systems to track when parents return the deposit to the tenant when they move out instead of the child, treating it as "unreturned liabilities," and pursues it to the end."
-So, are you saying 'workarounds' no longer work?
"Classic methods like 'indirect gifting' that routes funds from grandparents to grandchildren can no longer evade the National Tax Service network, which sees three generations' money flows at a glance. Thinking 'maybe I'll get lucky and not get caught' is very dangerous. Now, from the design stage of a gift, the key is whether you can prove the 'child's actual repayment capacity.'"
-Are urgent sales by multiple-home owners increasing these days?
"In some areas, listings from multiple-home owners are appearing mainly for high-priced dwellings with asking prices lowered by 100 million to 300 million won. But the important point is that urgent sales are not spreading across the market. There are occasional urgent listings, but transactions are absent."
-From the standpoint of end users trying to buy a home, is now a critical opportunity?
"It could be an opportunity, or it could be a trap. Based on price alone, it may look like an opportunity, but in a land transaction permit zone, you can complete the transaction smoothly only if all of the following align: eligibility for actual residence, the loan limit and the closing schedule. You could rashly sign for an urgent sale and still get stuck at the closing stage."
-We hear the methods for filling out the real estate transaction report and the source of funds plan were recently changed.
"In line with the trend of stronger verification of funding sources, the forms were revised to more faithfully reflect relevant details in the real estate transaction report and the source of funds plan. For the real estate transaction report, if the contract date is on or after Feb. 10 this year and the filer is a licensed real estate agent, they must additionally submit a receipt or bankbook copy proving payment of the deposit along with a copy of the real estate sales contract when reporting the transaction.
Some items in the plan for funding dwelling acquisition and move-in were added or changed. A foreign currency input field was newly created under "cash and other funds," and additional supporting documents are required when necessary. Procedures were supplemented to check whether foreign currency cash holdings were reported upon entry. Proceeds from selling virtual assets were also newly included, and when using gift or inheritance funds, you must state whether gift tax or inheritance tax was filed.
For loan items, if multiple financial institutions are used for the same loan type, each bank name must be listed individually while the amounts are combined. This is intended to clarify the loan structure and the status of financial institutions. With this revision, if you take a light, formalistic approach to filling out the plan for funding dwelling acquisition and move-in, you may be more likely to receive requests for explanations later."
-What is the most important decision-making criterion end users or investors should have in today's market?
"Ultimately, the key is not 'at what price you transact,' but 'whether you can handle it after taxes and expenses.' Today's real estate market is colliding because policy timelines do not match on-the-ground speed. As May 9 approaches, sellers become more urgent, but buyers do not increase. If you rashly sign an urgent sale based only on price and then get stuck at closing or in a tax audit, the costs will be much greater. Now is not the time to 'decide' on a gift or a purchase; it is the time to 'design' the substance of your funds."