Series Order
Part 1 | Unpaid Corporate Transactions: Liability Behind the Veil
Part 2 | Trade Name Continuity and the Liability of a Successor
Part 3 | Directors’ Liability for Damages
Part 4 | The Person Behind the Company Name
Part 5 | The Limits of Self-Defense in Assault Cases
Part 6 | Criminal Settlement Money: How Much Is Appropriate?
Part 7 | Can Quasi-Rape Be Established If One Has No Memory After Drinking?
Part 8 | Freelancers and Severance Pay: What Courts Really Examine
Part 9 | Assignment of Receivables for Business Financing
Part 10 | Can You Get Divorced If Your Foreign Spouse Disappears?
Part 11 | Can a Tenant Terminate a Lease if Repairs Are Refused?
Part 12 | Can a Subcontractor Recover Payment if the Main Contractor Disappears?
Part 13 | What You Must Know Before Your First Police Interview
Part 14 | Can a Real Estate Contract in a Land Transaction Permit Zone Be Cancelled Before Government Approval?
Part 15 | Is It Trespass to Enter Another Person's Home by Concealing Criminal Intent?
Part 16 | Impersonating Someone by Creating an Instagram Account Can Also Be a Criminal Offense
Part 17 | When Does an Indecent Act Become a Crime?
Part 18 | When a Water Leak Requires Repairs, Can the Tenant Decide the Repair Method?
Part 19 | How Far Does a Licensed Real Estate Agent’s Duty to Explain Extend?
Part 20 | Does Swearing in a Residential Area Constitute Criminal Insult?
Part 21 | Can You Claim Damages for Incorrect Tax Advice Without a Formal Engagement?
By Hong Seung-kwon, Principal Attorney, PAN Law Firm (skh@law-pan.com)
Tax considerations are an important factor in deciding whether to sell or gift real estate. This is particularly true for capital gains tax and gift tax, where the amount due can vary substantially depending on the timing of a transaction or the number of homes owned. Many people therefore proceed with a transaction in reliance on a tax accountant's advice.
But what if a person did not formally engage a tax accountant to handle a tax filing and received only a consultation, then incurred unexpected taxes or penalties because the advice was incorrect? Can the person claim damages from the tax accountant?
Court precedents indicate that a tax accountant's liability is not automatically excluded simply because no formal engagement agreement was signed.
In one case reviewed by the Supreme Court, a tax accountant had previously handled tax matters for the consultant's family on several occasions before providing advice on an inheritance tax issue. Without sufficiently reviewing the relevant documents and laws, the accountant advised that an inheritance tax filing was unnecessary. The consultant relied on that advice, failed to file and later incurred penalties and other costs.
The Supreme Court held that even when no separate engagement agreement had been concluded for the matter and the advice was provided orally and without charge, a tax accountant may still have a duty to review the applicable laws, examine the materials presented by the person seeking advice and respond with due care. If the accountant breaches that duty by providing incorrect advice and the person suffers a loss after reasonably relying on it, the accountant may be required to compensate for that loss.
The ruling does not mean, however, that receiving advice from a tax accountant always gives rise to a claim for damages.
In the case where liability was recognized, the tax accountant had previously handled the consultant's tax matters, and a substantial relationship of trust had developed through those dealings.
A specific duty of care may be recognized when the tax accountant can be regarded as having been entrusted with advising on a particular tax issue, or when a relationship of trust comparable to a formal engagement has otherwise been established.
In an actual dispute, the analysis should therefore extend beyond whether a written agreement exists and examine the specific circumstances in which the advice was given.
Relevant factors include whether the person had previously retained the same tax accountant for tax filings, whether specific documents such as a sale agreement or real estate register were provided, and whether the accountant reviewed those materials and gave a concrete opinion on matters such as tax-exempt status or the amount of tax due.
Another important point is that incorrect advice does not automatically make the full amount of tax paid recoverable as damages.
For example, if a tax accountant incorrectly advised that a transaction qualified for a tax exemption, but the applicable requirements had never been satisfied and the tax would have been payable from the outset, the tax itself would be difficult to characterize as a loss caused by the accountant's error.
By contrast, if accurate advice would have allowed the person to change the timing of the transaction or choose another lawful method of reducing the tax, but reliance on the incorrect advice resulted in additional tax, the difference may be recognized as recoverable damages.
Ultimately, liability for damages arising from tax advice depends on whether the tax accountant owed a specific duty of care, whether that duty was breached through incorrect advice, and whether reliance on the advice caused a loss that could otherwise have been avoided.
About the Author
Hong Seung-kwon is a principal attorney at PAN Law Firm who handles a wide range of legal matters, including civil and criminal litigation and legal issues emerging in the digital age. Hong continuously analyzes how technological innovation, the legal order governing property rights and changes in regulatory policy affect the law and market order.
