German inheritance tax reduction due to costs for corrected tax returns

In its most recent judgment of 15 May 2019 (reference number: 7 K 2712/18), the Finance court Baden-Wuerttemberg contradicts the previous administrative view: it ruled that the tax consultancy costs paid by the heir for the preparation of corrected tax returns on the basis of income not yet declared or incompletely declared reduce inheritance tax. A legal obligation for the heirs to correct the tax return arises only in the event of tax-increasing facts.

In principle, heirs and executors of the will should take care when drawing up the inheritance tax return whether evidence of inaccuracy of the testator's last income tax returns (2-3 years) can be found, since heirs and executors of wills are liable for incorrect tax returns of the testator.

A typical example: low or no capital income in the tax return (in the annex "Kap") despite substantial sums of money in foreign bank accounts - it would be necessary to check whether the interest income or income from securities was fully declared at the time. In the event of tax-increasing facts, heirs and executors of wills are obliged to examine the submitted income tax returns for at least 10 years before the date of death of the testator.

The decision of the Finance court is not yet final, since the defendant tax office has appealed to the Federal Finance Court of Germany (reference number: II R 30/19).