Anyone who evades tax must be prepared for the tax office to issue tax assessment notices even years later. However, this option is subject to a time limit. In a ruling dated 19 May 2026, the Federal Fiscal Court (BFH) clarified that the tax investigation department can no longer extend the so-called assessment period if it only commences its investigations after that period has expired (Ref.: VIII R 17/24).
What is the assessment period all about?
The tax office may only assess taxes or amend them retrospectively within certain time limits. As a general rule, the time limit is four years. If tax has been evaded, this time limit is extended to ten years. Once these time limits have expired, the tax office may, in principle, no longer issue tax assessment notices. This is referred to as the limitation period for tax assessment.
However, the German Fiscal Code (AO) provides for so-called suspensions of the limitation period: under certain circumstances, the running of the limitation period is suspended, i.e. halted. One such suspension applies when the tax investigation department commences its investigation into the basis of assessment (Section 171(5), first sentence, AO). It was precisely this suspension that was at issue in the case in question.
The specific facts of the case
In 2001, a married couple failed to declare substantial investment income from Swiss bank accounts in their income tax return. Both spouses died in 2003 and 2005. The heirs, including the subsequent claimant, were aware by July 2006 at the latest that these earnings had not been declared. However, they did not submit an amended return – which the heirs would have been obliged to do under section 153 of the German Fiscal Code (AO) – until September 2012.
In the opinion of the Federal Fiscal Court (BFH), the ten-year limitation period for the tax year 2001 expired at the end of 31 December 2012. By the time the tax investigation department launched a preliminary investigation in September 2012 and the tax office issued an amended tax assessment in November 2017, the limitation period had already expired.
The Federal Fiscal Court’s ruling
The tax office argued that the suspension resulting from the tax investigation (Section 171(5), first sentence, of the German Fiscal Code (AO)) could be combined with the suspension due to the ongoing limitation period for criminal prosecution (Section 171(7) of the German Fiscal Code (AO)), meaning that the notice was still admissible.
The Federal Fiscal Court rejected this line of argument. For the limitation period to be suspended as a result of a tax investigation, the investigation must before the expiry of the standard, unrestricted assessment period begins its work. If this time limit has already expired, even a concurrent suspension of the limitation period is of no further use. A combination of the grounds for suspension in the manner requested by the tax office is not possible. The Federal Fiscal Court (BFH) thereby confirmed its previous case law and dismissed the tax office’s appeal.
What does this mean for those affected?
This judgement is significant for heirs who may have inherited incomplete tax returns from their legal predecessors. It shows that, on the one hand, heirs can also commit their own tax offences if they fail to rectify known errors in good time. On the other hand, the limitation period for tax assessments also protects heirs from the tax office being able to demand additional tax payments without any time limit.
Any heir who becomes aware of undeclared income of a deceased person should take seriously the obligation to correct such income under section 153 of the German Fiscal Code (AO) and the associated deadlines and risks. In individual cases, it is advisable to seek tax advice at an early stage in order to avoid both tax and criminal law consequences.
Source: BFH rulings
This article was created with the help of AI and has been editorially reviewed.
