Over-generous parents lead to tax audits

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Over-generous parents lead to tax audits

Published: 03 Feb. 2022, 14:58

Park Jae-hyung, assistant commissioner for property taxation at the National Tax Service, brief on inheritance tax evasion cases at the government complex in Sejong on Thursday. [YONHAP]

A young person bought an apartment and a store in Seoul for 3 billion won -- with no source of income. To buy daily necessities, fancy stuff and to travel abroad, the person used credit cards owned by his or her parents.

Behavior like that leads inevitably to a tax audit.

The National Tax Service on Thursday said it started audits of 227 people suspected of claiming inheritances from their parents without paying tax.

Almost all bought real estate, stock and high-end goods using their parents’ money.

The NTS referred these people as “eomcajok,” a portmanteau of the words mom, credit card and tribe. It refers to people who live on their parents' credit cards.

In Korea, that kind of generosity from Mom or Dad is not illegal.

The tax agency said that beyond daily expenses -- which do not include high-end luxury bags, automobiles or traveling abroad -- it is considered an illegal form of inheritance.

The NTS is particularly interested in assets such as real estate and stocks being purchased under a son or daughter's name, while other expenses are covered by parents.

Even if real estate is bought through their own sources of income, if a son or daughter uses their parent’s finances for other expenses, they've crossed the line, according to the NTS.

That was the case for a married couple that saved their incomes but paid for a luxury lifestyle with a credit card under a father’s name. The father was also paying off loans used to buy stock and real estate.

The NTS said it was able to monitor income and spending patterns via credit cards.

Children who receive financial help from their parents to buy property are not considered illegal if they can prove they are repaying any borrowed money with interest.

“In the course of overcoming Covid-19, household debt has surged, breaking records and the debt burden for many people has increased,” said a NTS official. “Yet, some children with rich parents have used their parents to acquire real estate and stock by evading taxes."

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]