As my sales have recently increased, I am worried about a tax investigation; can a case like this also amount to a suspicion of tax evasion?

Hello. I am an attorney specializing in tax law at Daeryun Law LLC.

A suspicion of tax evasion can become a problem where taxes are reduced or a refund is received by fraud or other improper means.

Representative types include the omission of revenue by leaving out part of sales, the use of borrowed-name accounts or the disguise of identity, the treatment of fictitious expenses by creating false transactions to record costs, and the concealment of assets by hiding property or financial assets.

In particular, transactions whose form and substance differ, such as family salaries or cash sales, are areas that are easily suspected as tax evasion in a National Tax Service investigation.

The level of punishment for a suspicion of tax evasion is clearly distinguished under Article 3 of the Punishment of Tax Evaders Act based on the scale of the tax evaded.

Where a person fails to pay taxes or receives a refund and deduction by fraud or other improper acts, they may be subject to imprisonment with labor for up to 2 years or a fine equivalent to up to twice the evaded tax (or the refunded or deducted tax).

In particular, where the evaded tax, or the unjust refund and deduction amount, is 500 million won or more, the punishment is aggravated, and a fine equivalent to up to three times that amount, or imprisonment with labor for up to 3 years, may be imposed.

However, not every error immediately leads to punishment, and intent, repetitiveness, and scale become the factors for judgment.

Checking the transaction structure and filing details at the stage before a tax investigation and, if necessary, preparing an amended return or a response strategy through the advice of an attorney specializing in tax law is helpful in preventing the matter from expanding into a suspicion of tax evasion.