The eldest son who “covered up 30 million yen” given by his late father… One phone call from the tax office that made his younger brother and sister jump up and down

There is an old saying that goes, “Brothers and sisters are the beginning of strangers. It means that brothers and sisters, who have lived and slept together in their childhood, become estranged from each other as they start working or get married.

Inheritance sometimes makes people realize this old proverb, as was the case in the B family. The eldest son graduated from a local national university and found a job in the prefecture. After his mother passed away, the family moved to a new house near the family home out of concern for his father. His younger siblings living in the city also relied on him.

The eldest son and his wife took good care of their elderly father. They took him to and from the hospital and took care of him afterwards without hesitation. When my father was in critical condition, they immediately called my younger brother and sister, and the three of them were able to take care of my father in his final days. Therefore, the younger siblings trusted their older brother and entrusted him with the management of the family home and inheritance procedures.

The elder brother proposed, “Let’s sell the family home and divide the money and father’s savings equally among the three of us (inheritance),” even though it was in the countryside and it would not amount to much.

My brother and sister agreed, of course. They even felt sorry that their brother’s inheritance should be equally divided, even though it was my brother and his wife who had taken care of my father. So, the B family’s inheritance division conference was settled without any particular trouble. The family home was sold within 10 months of the inheritance, which was the deadline for filing inheritance tax returns, and the division of the estate was successfully completed.

The sadness of losing my father is almost over. In the fall of two years later, just as the grief over the loss of their father was about to subside, a phone call sent their younger brother and sister jumping up and down. The call was an advance notice of a “tax audit” from the tax office.

The eldest son hid “parental money” from his brother and sister.

The peak season for tax audits is between July and December, one to two years after the filing of the inheritance tax return, known as “Nanajuni.

For the younger brother and sister, who trusted their older brother and entrusted him with the inheritance procedures, this was a surprise. However, if the inheritance tax returns are incomplete and the tax inspector suspects that the tax returns have not been filed, the tax inspection will be extended to all the heirs. If a tax accountant has completed the procedures for filing inheritance tax returns on behalf of the family, the tax accountant will be notified, and the tax accountant may be present.

In the case of the heirs of the B family, the elder son, who is the elder brother, prepared the inheritance tax return himself and submitted it to the tax office without requesting a tax accountant. The younger brother and sister also checked the tax return and agreed to sign it. However, the younger brother and sister, who had lived apart from their family for many years, did not know the amount of their father’s savings and did not investigate his property holdings.

At first, the younger brother and sister thought that the elder brother might have miscalculated something or made a mistake when preparing the inheritance tax return, since he was an amateur. The younger brother thought, “My brother, who has always been a good student, has indeed declined,” and the younger sister said, “See, that’s why I told you at the time not to ask the tax accountant.　I told you, ……,” she thought.

However, things were not so sweet. Through the tax audit, it turned out that the older brother, whom the younger brother and sister had trusted, had betrayed them and committed fraud!　In fact, when the brother moved closer to the family home, the father had provided 30 million yen to purchase the house, and the car that took the father to and from the hospital had also been purchased by the father for 3 million yen.

Thus, if a parent gives a child free money to purchase a house or a car, it is considered a “gift. Therefore, if the amount of the annual gift exceeds the basic exemption amount of 1.1 million yen, a gift tax return and tax payment must be filed and paid. However, the elder brother had not done so. Moreover, he concealed this fact not only from his younger siblings but also from the tax office.

A gift made before one’s death constitutes a “special benefit. To put it simply, a special benefit is a benefit that some heirs received from the decedent (the person who died leaving property) as a gift before death, a bequest, or a gift upon death. The Civil Code stipulates that the amount must be added to the amount of inherited property before determining each heir’s share.

The elder brother received the funds to purchase a house and a car from his father before his death in cash, so he thought the tax office would not find out about it. However, even if the gift could be concealed at the time of the gift, it would eventually be discovered once the inheritance occurred. Article 58 of the Inheritance Tax Law requires that the mayor of the municipality, etc. notify the tax office of the death by the end of the month following the date of receipt of the notification of death.

Furthermore, all national tax bureaus and tax offices throughout Japan are linked by a network called the KSK (Kokuzei Sogo Kanri) system. For example, by entering the name of a deceased person into this system, the tax office can determine the person’s income and tax payment record.

In addition, if there is a suspicion of no declaration or failure to declare, the tax office will check not only the deposit and savings accounts of the decedent but also those of his or her heirs going back 10 years. Nowadays, the National Tax Administration and the tax office can make inquiries online to financial institutions, which speeds up the process. If there are any suspicious deposits or withdrawals, a careful preliminary investigation is conducted.

In other words, the tax office has already grabbed a lot of information about the heir’s finances when they are contacted and told that they are going to conduct a tax audit. The tax inspector is also aware of the brother’s savings account and checks for suspicious deposits and withdrawals. If he has a mortgage or other loans that are large relative to his annual income, the tax inspectors are suspicious.

So why are tax audits extended to younger brothers and sisters?　The reason is that the original purpose of an inheritance tax audit is to verify the accuracy of tax returns submitted by taxpayers (heirs, beneficiaries, etc.). Any other omissions or errors in the tax return will be corrected. Therefore, in principle, all heirs are present.

In the case of the B family, the younger siblings were even subjected to an unexpected penalty.

More inheritance taxes and even penalties!

Failure to file or pay inheritance tax will result in the following penalties: additional taxes in addition to the original inheritance tax.

• If the deadline for filing and paying inheritance tax has passed: Delinquent tax

The deadline for filing and paying inheritance tax is 10 months from the date of inheritance. Failure to file and pay inheritance tax by then will result in the imposition of a “delinquency tax” at an annual rate of up to 14.6%.

• Failure to declare inherited property: additional tax for under-reporting

If a tax return is filed after notification of a tax audit, an additional tax on underreporting at a rate of 10-15% will be imposed. If the taxpayer realizes and files the tax return before the tax audit notice, no tax will be imposed.

• Failure to file an inheritance tax return when required: additional tax on non-filing of return

If the taxpayer files the return before the tax audit notice, 5% of the original amount of inheritance tax will be added to the tax. In the case of malicious acts such as intentional failure to declare, the following heavy additional taxes will be imposed.

• In the case of concealment or disguise of inherited property: heavy additional tax

Cover-up” means concealment, and “disguise” means fabrication or falsification. If the inheritance tax has already been declared and paid, 35% of the original amount of inheritance tax will be added; if no declaration has been made, 40% of the original amount of inheritance tax will be added.

If the eldest son of the B family falsified the amount of inheritance tax in order to evade inheritance tax, the heaviest “heavy additional tax” would be imposed; in the B family’s case, however, the taxpayer was not found to be that malicious and only had to pay “additional tax for underreporting,” but what was shocking for the younger siblings was that the elder brother disappeared after the tax audit. As a result, the elder brother’s house was “repossessed.

If they were still unable to pay the increased inheritance tax and additional taxes, all the other heirs would have to bear the unpaid portion. The younger siblings would be left to cry and clean up their brother’s mess. How did this situation arise?　Of course, there is no room for sympathy for the elder brother who has gone into hiding under a cloud.

If the amount of the gift during the year from January 1 to December 31 was within the basic exemption of 1.1 million yen, the gift was exempt from gift tax and did not need to be included in the inheritance.

However, if the gift was made within three years before the father’s death, the amount of the gift must be added to the amount of inherited property to calculate inheritance tax. The “Reiwa Tax Reform Proposal for 2023” clearly states that this three-year period will be extended to seven years and will be applied from 2024, which means that if a gift is to be made during one’s lifetime, it must be made earlier.

In addition, if one were to provide funds for the purchase of a house to one’s eldest son, it would have been possible to use the “tax exemption for gifts of funds for house acquisition, etc. from lineal descendants.

Furthermore, even for younger siblings, it is not a good idea to leave all inheritance-related matters to their older brothers. It is true that the closer siblings or parents and children are to each other, the less likely they are to check on their inheritance for fear of getting into a dispute, but as in the case of the B family, this could have resulted in a breakdown between siblings.

Or, as the younger sister unintentionally mentioned, if they had consulted a tax accountant or other specialist who is familiar with inheritance tax, the situation might have ended differently.

Takeshi Okano was born in Chiba Prefecture in 1971. Graduated from the School of Commerce, Waseda University. Tax accountant specializing in inheritance tax. Representative Partner of Okano Inheritance Tax Corporation ( https://www.souzoku-zei.jp/). Opened an office near Shin-Yokohama Station in 2005.’ Incorporated in 2010 and opened a branch office near Tokyo Station. He specializes in land valuation and has handled more than 3,000 inheritance cases throughout Japan. He is the author of “A book to file inheritance tax returns by yourself” (Gentosha Media Consulting) and “Review land valuation and inheritance tax will be surprisingly low” (Asa Publishing Co., Ltd.).