[1] In a lawsuit seeking the revocation of a tax imposition disposition, where a taxpayer’s account in a financial institution falls under sales or revenues, and the taxpayer bears the burden of proof of the taxation requirement that the amount deposited in the account in the financial institution is an omitted amount in the return / The method of proving that the amount deposited in the account in the financial institution of the taxpayer constitutes sales or revenues, and the standard for determining whether it can be presumed, and the case

[2] Requirements for proving the specific items of necessary expenses to be deducted when calculating the amount of income of the business income earner for the relevant year to the taxpayer

[1] Since the tax authority bears the burden of proving the fact of taxation requirement in a lawsuit seeking revocation of a tax imposition disposition, the taxpayer’s account at a financial institution constitutes sales or revenue (import) and the taxpayer’s taxation requirement must prove that the amount of money deposited in the account at a financial institution is omitted. However, the taxpayer’s account at a financial institution’s account can be proved by either disclosing the fact that it can be inferred in light of the empirical rule in the specific litigation process or revealing indirect facts that can be acknowledged. In such cases, whether such presumption can be made can be determined based on whether the account at a financial institution’s account was used as a principal and management account on sales or revenue, deposit date, counterpart, and amount, etc. in light of the account’s weight in sales or revenue transaction, and possibility and degree of mixing of funds for other purpose than sales or revenue, etc. In addition, the taxpayer’s account at a financial institution’s account at a financial institution’s account as a result of comprehensive as to sales or revenue can not be determined by comprehensively considering various circumstances such as the transaction or revenue amount already reported to the account or its type of deposit account.

[2] When calculating the amount of income of the business income earner for the pertinent year, there are cases where the burden of proof regarding the specific items of necessary expenses to be deducted is difficult or the necessity of proof is attributable to the taxpayer in consideration of the party’s equity. However, such cases refer to the use of any expenses reported by the taxpayer by the tax authority and the case where the other party to the payment was proved to be false. Thus, even if there is no such proof, the taxpayer cannot be required to prove necessary expenses immediately until there is no such proof. Thus, if the tax authority fails to prove such proof, the taxpayer’s reported expenses cannot be denied without permission.

[1] Article 16 of the former Framework Act on National Taxes (Amended by Act No. 9911, Jan. 1, 2010); Article 80 (1) and (3) of the former Income Tax Act (Amended by Act No. 8144, Dec. 30, 2006) / [2] Article 16 of the former Framework Act on National Taxes (Amended by Act No. 9911, Jan. 1, 201); Article 80 (1) and (3) of the former Income Tax Act (Amended by Act No. 8144, Dec. 30, 2006)

[1] Supreme Court Decision 2003Du14284 decided Apr. 27, 2004 (Gong2004Sang, 919) / [2] Supreme Court Decision 97Nu15463 decided Jan. 15, 199 (Gong199Sang, 307)

Plaintiff

Head of the Do Tax Office

Seoul High Court Decision 2009Nu40744 decided February 23, 2012

The part of the lower judgment against the Plaintiff is reversed, and that part of the case is remanded to the Seoul High Court.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. As to the grounds of appeal on the omitted income

A. Inasmuch as the tax authority bears the burden of proving the fact of taxation requirement in a lawsuit seeking revocation of a tax imposition disposition, the taxpayer’s account constitutes sales or revenue (import). The taxation requirement of the amount omitted from the return is a principle proving that the tax authority bears the burden of proving that the amount deposited in the account of the financial institution. However, the fact that the amount deposited in the account of the financial institution constitutes sales or revenue can also be proved by disclosing or explaining indirect facts that can be inferred in light of the empirical rule in the specific litigation process (see Supreme Court Decision 2003Du14284, Apr. 27, 2004, etc.). In such cases, whether such presumption can be determined by comprehensively considering whether the relevant financial institution’s account was used as the principal deposit and management account for sales or revenue, and whether it constitutes sales or revenue regardless of the volume of sales or revenue transaction in the account, possibility of being mixed with funds other than sales or revenue, and circumstances that can easily be inferred or combined with the other party’s account deposit or revenue should not be determined as individual account deposit or other account deposit type.

Meanwhile, the principle of free evaluation of evidence under Article 202 of the Civil Procedure Act, which is applied mutatis mutandis by Article 8 of the Administrative Litigation Act, is not necessary to be bound by the formal and legal rules of evidence, and does not allow a judge’s arbitrary judgment. Thus, the fact finding shall be in accordance with logical and empirical rules based on the principle of justice and equity based on the admissibility of evidence that has gone through legitimate evidence examination procedures, and even if the fact finding falls under the discretion of the fact-finding court, it shall not go beyond the said limit (see, e.g., Supreme Court Decision 2009Da7198, 77204, Apr. 13, 2012).

B. On the grounds indicated in its reasoning, the lower court determined that: (a) considering that: (a) the Defendant’s tax investigation conducted on the Plaintiff operating an attorney-at-law business and conducted a tax investigation on the Plaintiff’s bank account (hereinafter “instant account”); (b) based on the Plaintiff’s total amount of KRW 1,017,356,126 from 200 to 2003 was omitted from the Plaintiff’s global income tax return; and (c) the Plaintiff imposed an increased comprehensive income tax belonging to the year 200 to 2003; and (b) the Plaintiff partially reduced the amount (hereinafter “each disposition of this case”); and (b) furthermore, most of the amount deposited into the instant account falls under the delegation fees; (c) the Plaintiff’s principal account in charge of managing attorney-at-law fees, barring any special circumstance, deeming that the amount deposited therefrom constitutes the Plaintiff’s global income tax deposit; and (d) the portion corresponding to the amount of the instant case’s tax evasion and the amount of each disposition of this case’s attached Form 4 is lawful.

C. Examining the reasoning of the lower judgment in light of the aforementioned legal doctrine and the evidence duly admitted, the lower court is acceptable to the effect that the amount deposited in the instant account constitutes the principal account managing the Plaintiff’s attorney’s attorney’s fees and constitutes a high probability of constituting the Plaintiff’s attorney fees sales. However, it is difficult to accept the lower court’s determination that all remainder except the amount indicated in the “Attachment 4” constitutes an import fees or that the import report constitutes an omitted commission for the following reasons.

(1) (A) First, even if it is highly probable that the instant account falls under the principal account that manages the Plaintiff’s attorney’s office fees and that the amount deposited into the instant account constitutes the Plaintiff’s office fees revenue, if there is evidence supporting that the Plaintiff was an amount irrelevant to sales or revenue for a specific amount of deposit, and that there was a external characteristic of sales or revenue separate from sales or revenue, or that there was a transfer for other reasons, in light of the date and amount of deposit, and transaction counterpart, etc., it is difficult to readily conclude the amount of deposit or revenue.

(B) In addition, according to the evidence duly admitted, it can be seen that the amount of the Plaintiff’s admission includes not only the transaction as seen below, but also the amount of the import fee revenue.

1) At the time of the original adjudication, the amount of KRW 1 million deposited in the name of Nonparty 1, No. 217, May 22, 2002, No. 218, and KRW 9 million deposited in the name of Nonparty 1, May 22, 2002, the amount of KRW 200,000 deposited in the name of Nonparty 1, No. 218, May 22, 2002

Nonparty 1 filed an application for formal trial with a summary order of KRW 2.5 million for the crime of occupational injury and death, and delegated the Plaintiff with the legal representation for the above criminal case and related civil cases. The Plaintiff issued a tax invoice of KRW 1 million on April 23, 2001 with respect to the fees for civil and criminal cases by Nonparty 1; the tax invoice of KRW 1.5 million with respect to the fees for civil and criminal cases by Nonparty 1; the tax invoice of KRW 1.5 million with respect to the fees for civil and criminal cases on August 6, 2001; and reported the receipt of fees for civil cases; and the fact that Nonparty 1 deposited KRW 10 million with the victim as agreed money; while the criminal case is in progress, Nonparty 1 deposited KRW 1,5 million on the part of the victim; and thus, it is highly probable that each of the above amounts in the name of Nonparty 1 constitutes part of the fees for civil and criminal cases to be paid to the victim.

2) Attached 20 million won deposited in the name of Nonparty 2 on March 31, 2003, No. 281, No. 281, 2003

The plaintiff owned ( Address omitted) apartment 317 and 1602, Sungnam-gu, Sungnam-si, but the plaintiff's children resided in the above apartment, and went to the director on May 14, 2003, and around that time, the non-party 2 transferred 22 million won to the account of this case in the name of the plaintiff on March 31, 2003. The non-party 2 reported the transfer of the above apartment to the above apartment on June 18, 2003 and resided until January 19, 2005. Thus, it is highly likely that the above entry amount in the name of the non-party 2 constitutes part of the lease deposit money for the above ( Address omitted) apartment owned by the plaintiff and there is no relation to the entrustment fee.

(C) In addition to the above circumstances and the circumstances acknowledged by the court below, considering the fact that a considerable amount of money is unrelated to the commission fee, it shall not be readily concluded as the commission fee sales or income, without examining whether there exists any material supporting the transfer of money due to external characteristics, such as the date and number of deposits, the transaction partner, and the circumstances, etc., separated from the sales or revenue, or other reasons, as alleged by the plaintiff.

(2) (A) Next, even if it is highly probable that the amount deposited in the account of this case constitutes the Plaintiff’s fee, if the Plaintiff asserts that the amount deposited is the amount already reported as the fee, and if there are materials supporting the relationship between the amount deposited and the amount reported as the fee, it is doubtful whether all the amount deposited can be readily determined as the fee omitted in the import declaration.

(B) In addition, according to the evidence duly admitted, it can be seen that the amount of the Plaintiff’s admission includes the amount of the inputs that can be deemed overlapping with the fee reported for import, including the transactions as seen below, in the following examples.

1) Attached Table 2 No. 47 No. 47, 2000 won deposited in the name of Nonparty 3 on September 19, 2000

On July 7, 200, the Plaintiff entered into an agreement on the acceptance of a criminal case with Nonparty 3 and Nonparty 4 with Nonparty 4, and determined the fee as “paid money: KRW 3 million (excluding value added tax) and the contingent fee: the transfer from Nonparty 3 on September 19, 200 to the instant account from Nonparty 3 on September 19, 200. The Plaintiff issued a tax invoice of KRW 2 million with respect to the above criminal case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case of Nonparty 3

2) Attached Form 2 No. 67 No. 67, Nov. 28, 2000, deposited in the name of Nonparty 5 on November 28, 2000

On November 28, 2000, the Plaintiff entered into an agreement on the acceptance of a criminal case with Nonparty 5 and father Nonparty 6, and determined the fees as “paid money: KRW 5 million (excluding value-added tax) and contingent fees: On the same day, the Plaintiff received KRW 2 million from Nonparty 5 to the account in this case on the same day, and the Plaintiff issued a tax invoice of KRW 5 million with respect to the above criminal case fees on December 6, 200, and reported the receipt of KRW 5 million with the acceptance fees. Thus, the above input fees in the name of Nonparty 5 constitute the above criminal case acceptance fees, and it is highly probable that the import report has already been made.

3) Attached Table 2 No. 70 No. 70, Dec. 6, 2000 and KRW 5.5 million deposited in the name of Nonparty 7 on December 6, 200

On December 5, 200, when the Plaintiff entered into an agreement on the acceptance of a criminal case with Nonparty 7 and her husband with Nonparty 8 on December 5, 200, the Plaintiff determined the fee as “paid money: 5 million won (excluding value-added tax) and the contingent fee: 7 million won at the time of prosecution under the name of the possible crime, etc., and transferred from Nonparty 7 to the account of this case. On December 8, 2000, the Plaintiff issued a tax invoice of KRW 5 million with respect to the supply price of the above criminal case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case case

4) Attached 244 No. 2754,00 won deposited in the name of Nonparty 9 on September 24, 2002

On September 23, 2002, the Plaintiff entered into an agreement on the acceptance of the case with Nonparty 9 and Nonparty 10 with respect to the criminal case (the appellate court) on September 23, 2002, the Plaintiff determined the fee of KRW 2.5 million (excluding value-added tax) and received KRW 2.75 million from Nonparty 9 on the following day to the instant account: The Plaintiff issued a tax invoice of KRW 1.5 million with respect to the fee for the said criminal case on September 27, 2002, and reported the receipt of the fee of KRW 1.5 million with respect to the fee, so it is highly probable that the said amount constitutes the acceptance fee for the said criminal case, and that a report on the receipt of part of which was already made.

(C) In light of the above circumstances, with respect to the amount deposited in the instant deposit account that the Plaintiff argued that the amount was already reported as a commission fee, it shall not be readily concluded as sales or income, without specifically determining whether the amount overlaps with the commission fee already reported, in light of the date, amount, circumstances, and transaction counterpart, etc. of the deposit.

D. Nevertheless, the lower court concluded otherwise based on the following circumstances: (a) based on the circumstance that the instant account constitutes the principal account that manages the Plaintiff’s commission fees, without sufficiently examining and determining whether the amount of the deposit is not the fee, or whether the amount of the deposit is likely to constitute the amount already received; and (b) concluded that the amount of the deposit except the amount specified in attached Table 4 constitutes both the commission fees and the report on the import thereof was omitted, solely on the grounds stated in its holding.

In conclusion, the lower court erred by misapprehending the legal doctrine regarding the certification of the omission of a taxpayer’s import and return, or by failing to exhaust all necessary deliberations beyond the bounds of the principle of free evaluation of evidence in violation of logical and empirical rules, thereby adversely affecting the conclusion of the judgment. The allegation in

2. As to the grounds of appeal on the amount reported by the non-party 11 in joint business place

The ground of appeal on this part is that the judgment of the court below that deemed the Plaintiff’s fee of KRW 26,544,299, which was received in the name of Nonparty 11 in 2003, even though the Plaintiff had a relationship with Nonparty 11 as an attorney-at-law and joint businessman, was unlawful. However, this part of the ground of appeal is merely an error of the judgment on the selection of evidence or probative value belonging to the free trial of the court below, which is a fact-finding court, and thus,

In addition, even if the reasoning of the lower judgment is examined in light of the evidence duly admitted, the lower court did not err in its judgment by exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules.

3. As to the ground of appeal on the excessive appropriation of personnel personnel expenses

A. On the grounds indicated in its reasoning, the lower court determined that the part of each of the dispositions of this case, which denied the costs of the Plaintiff’s disposition, was lawful, on the ground that the Plaintiff’s global income tax return for the year 2000, 2002, 13,450,000 won, and 36,770,000 won in 202, and 29,910,000 won in excess of the amount of personnel expenses when it reported each global income tax for the year 200, 2002, and 2003, was insufficient to reverse this.

B. (1) Examining the reasoning of the lower judgment in light of the evidence duly admitted, the lower court did not err by exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules, contrary to what is alleged in the grounds of appeal.

(2) However, the part concerning Nonparty 12 out of the employee labor cost is not acceptable for the following reasons.

In calculating the amount of income of a business income earner for the relevant year, there are cases where the burden of proof regarding the specific items of necessary expenses to be deducted is attributable to the taxpayer in consideration of the parties’ equity, etc., but such cases refer to the use of any expenses reported by a taxpayer by a tax authority and the cases where the other party to the payment thereof has been proved to be false. Thus, even if there is no such proof, the burden of proof as to necessary expenses is not immediately attributable to the taxpayer (see Supreme Court Decision 97Nu15463, Jan. 15, 199, etc.). Thus, if the tax authority fails to prove such proof, the burden of proof as to necessary expenses should not be denied without permission of the taxpayer.

However, according to the evidence duly adopted, including the data submitted by the Defendant, the Plaintiff reported the annual salary of KRW 3,565 million for 200, KRW 4,5350,000 for 200, KRW 4,5350,000 for 2002, and KRW 2,950,000 for 203,000 for 200 and KRW 2002 for 200,000 for 300,000 for 200 and 2002 for 30,000 for 30,000 for 203, under the premise that Nonparty 12 was retired on July 2003, 200 for 200, KRW 565,00 for 200 for 200,000 for 205 and 200,000 for 205,000 for 205,000 for 203.

Examining these facts in light of the legal principles as seen earlier, it is doubtful whether the data submitted by the Defendant alone can be deemed that the employee personnel expenses for Nonparty 12, which the Plaintiff appropriated, were proven to be false, and it is not likely that the Plaintiff need to prove the payment of the employee personnel expenses.

Nevertheless, the lower court deemed that the portion of the personnel expenses of Nonparty 12 in 2000, 202, and 2003, among the personnel expenses of Nonparty 12, was falsely appropriated, and determined that the part relating to each of the instant dispositions was lawful. In so doing, the lower court erred by misapprehending the legal doctrine on the certification of necessary expenses, or by exceeding the bounds of the principle of free evaluation of evidence in violation of logical and empirical rules, thereby adversely affecting the conclusion of the judgment. The allegation in

4. Conclusion

Therefore, the part of the lower judgment against the Plaintiff is reversed, and that part of the case is remanded to the lower court for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim So-young (Presiding Justice)