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Voluntary disclosure of unreported income in estate

July 2019 - Tax & Private Client. Legal Developments by GRP Rainer LLP.

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Unreported income in an estate can become a problem for the heirs. If it has been concealed from the tax authorities, it may still be possible to rescue the situation with a voluntary declaration for tax evasion.

An estate can carry a high risk potential for many an heir if the testator deposited untaxed assets in foreign accounts as a way of concealing it from the German tax authorities. While the heirs are not liable for the testator’s tax evasion, we at the commercial law firm GRP Rainer Rechtsanwälte can report that they may be guilty of an offence if they fail to disclose the untaxed income to the relevant tax office. To avoid personally committing tax evasion, heirs who have concealed unreported income in an estate can still submit a voluntary declaration leading to immunity from tax evasion charges.

If an heir is aware of unreported income in the estate, he or she must correct the testator’s tax returns as well as inform their fellow heirs and those entitled to a share of the compulsory portion about the testator’s tax evasion. Failure to do so may render them liable to prosecution for fraud. This all means that heirs may be faced with a lot if the estate includes unreported income. While it might therefore be high time to come clean with the tax office, a voluntary declaration can only lead to immunity from tax evasion charges if it is complete and submitted on time, i.e. the tax evasion must not yet have been discovered by the authorities. To this end, any information that is relevant from a tax perspective needs to be presented to the tax office.

For a layperson, it is almost impossible to meet the requirements for a voluntary declaration to lead to immunity. Even minor errors can render a voluntary declaration invalid in its entirety and lead instead to the possibility of a prosecution for tax evasion. Since every case is different and inheritance matters can be particularly complicated, standard templates found online are of no use because they are not capable of sufficiently accounting for the specific circumstances of a given case. Mistakes are then virtually inevitable, and the end result is a voluntary declaration that does not lead to immunity.

That is why lawyers experienced in the fields of tax and criminal tax law ought to be consulted. They know what information a voluntary declaration needs to include for it to lead to immunity and can exercise discretion in helping to prepare it.

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