One Law Partners, LLC successfully represented the taxpayer in a Tax Tribunal appeal concerning the application of the one household-one home capital gains tax exemption and obtained a revocation of the assessment through the tax authority’s ex officio withdrawal of the disposition.

1. Overview of the Case
The taxpayer reported capital gains tax on the sale of a residence on the basis that the transaction qualified for the one household-one home tax exemption.

Following a post-filing review, however, the tax authority determined that the taxpayer had temporarily owned two homes, including a separate property (the “Subject Property”) acquired from the taxpayer’s father-in-law.

The tax authority concluded that the taxpayer did not qualify for the exemption because the taxpayer had failed to satisfy the requirement of residing in the newly acquired home for at least one year. On that basis, the tax authority assessed additional capital gains tax.

The taxpayer challenged the assessment by filing both an objection and a Tax Tribunal appeal.

2. Key Issue
The principal issue was whether the taxpayer could receive the benefit of the one household-one home capital gains tax exemption under the substance-over-form principle where the acquisition of the Subject Property constituted a sham transaction involving a temporary transfer of title intended to avoid compulsory execution by creditors.

3. Legal Strategy
Attorney Byoung-Joo Kim and Advisor Chan-Woo Chung of One Law Partners, LLC argued that, notwithstanding the formal appearance that the taxpayer had acquired the new home, the transaction merely involved a temporary transfer of title to the taxpayer by the former owner for the purpose of avoiding compulsory execution by creditors.

In particular, they emphasized that the transfer of the new home constituted a collusive false declaration without any genuine intention to transfer ownership between the parties and therefore qualified as a sham transaction that was void under the Civil Act. Accordingly, the taxpayer could not be regarded as having actually acquired the new home in substance.

Based on this reasoning, they argued that the taxpayer could not be treated as a temporary owner of two homes merely on the basis of the formal registration records and that the tax exemption could not be denied on that basis.

They further contended that, under the substance-over-form principle, a sham transaction that is void as a matter of law should not be recognized for tax purposes and that the one household-one home capital gains tax exemption should therefore apply to the sale of the original residence.

4. Significance of the Case
During the Tax Tribunal proceedings, the tax authority withdrew its advance notice of assessment ex officio, effectively accepting the arguments presented by One Law Partners, LLC.

This decision is significant because it reaffirms that the tax authority may not deny the application of a tax exemption solely on the basis of the form of a transaction and must instead carefully examine the substantive nature and legal validity of the transaction in determining whether taxation is appropriate.

In particular, the decision demonstrates that, where a transaction constitutes a sham transaction that is void under the Civil Act, the number of homes owned should not be determined solely on the basis of formal registration records. Rather, the analysis should focus on whether the taxpayer actually acquired the property in substance.

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