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Costs incurred obtaining tax advice reduce estate tax burden

November 2019 - Tax & Private Client. Legal Developments by MTR Rechtsanwalte.

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The costs incurred by an heir in correcting the testator’s tax return reduce the estate tax burden. That was the verdict of the Finanzgericht (FG) Baden-Württemberg, the Fiscal Court of Baden-Württemberg (Az. 7 K 2712/18).

We at the commercial law firm MTR Rechtsanwälte note that if the testator submitted incorrect tax returns, the heir is obliged to correct them. According to a ruling of the FG Baden-Württemberg from May 15, 2019, the costs incurred from correcting the tax returns can be offset against estate tax.

Heirs ought to examine whether the estate includes untaxed income. If this is the case, the heir must correct the testator’s tax returns. Such were the circumstances in the instant case. The testator had not paid the correct tax on income from capital generated in Switzerland. The daughter, as the sole heir, had the incomplete tax returns corrected. She then deducted the associated costs from the amount of estate tax due.

While the tax authorities did not take these costs into account when determining the amount of estate tax due, the Finanzgericht took a different view. It ruled that the plaintiff had been obliged as the heir to correct the incomplete tax returns. Since this entailed her fulfilling a pre-existing obligation of the testator, the Court held that the costs must therefore be accounted for as liabilities of the estate.

Lawyers with experience in the field of tax law can offer advice.

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