Inheritance Tax Evasion - Defense and Voluntary Disclosure

When an inheritance turns into a criminal tax case

An inheritance brings not only grief and organizational effort but also tax obligations. Anyone who inherits assets in Germany - real estate, accounts, securities, cash, jewelry or precious metals - must notify the tax office of the acquisition. If this does not happen, a concealed or even merely forgotten inheritance can quickly become an allegation of tax evasion.

The situation becomes particularly delicate when the tax office or the tax investigation department discovers the matter on its own - through bank control notifications, reports from abroad, account retrievals or in the course of other investigations. Once suspicion is in the room, every step counts. Reacting the wrong way can worsen your position considerably - and so can doing nothing at all.

This article explains when an inheritance must be declared, when concealment becomes a criminal offense, which time limits apply, why voluntary disclosure is often already barred, and which defense strategy actually works in this situation.

"The most expensive mistake with an undeclared inheritance is to react in panic after the first letter from the tax office. The second is to do nothing at all."

• →Tom Beisel, Attorney

The duty to declare - every acquisition upon death must be reported

Under Section 30 of the German Inheritance Tax Act (ErbStG), anyone who acquires assets upon death must notify the competent tax office within three months of becoming aware of the acquisition. This duty exists regardless of whether inheritance tax is ultimately due or whether allowances apply. The notification itself is informal and does not yet replace the actual tax return - it is only the first step by which the tax office learns of the acquisition.

Why the tax office usually learns of an inheritance anyway

Many heirs underestimate how dense the control network is. In addition to the heir's own duty to declare, third parties have extensive reporting obligations. Under Section 33 ErbStG, banks, insurers and other asset custodians must report to the tax office the assets of a deceased person held with them. Courts, notaries and German consulates also report inheritances, the opening of wills and certificates of inheritance.

In practice this means that accounts, securities deposits, life insurance policies and real estate generally become known to the tax office regardless. Anyone relying on such an asset remaining undiscovered significantly underestimates the density of controls. On top of this comes the automatic international exchange of information on financial accounts, through which foreign accounts are reported to the German authorities as well.

Harder to detect are assets without a reporting channel - cash, jewelry, art, precious metals or unregistered foreign assets. This is precisely where some heirs form the impression that such assets can be kept away from the tax authorities. Yet such values frequently surface too: in later sales, bank transfers, border controls or in the course of other investigations.

When concealment becomes a criminal offense

Tax evasion under Section 370 of the German Fiscal Code (AO) occurs when incorrect or incomplete information is provided to the tax office, or when a fact of tax relevance is concealed in breach of duty, thereby reducing the tax owed. With inheritance tax, this typically happens either through completely omitting the notification under Section 30 ErbStG or through an incomplete inheritance tax return in which parts of the estate are missing.

Criminal liability arises not only from actively providing false information but also from failing to act in breach of duty. Even the attempt is punishable.

The amount also plays a decisive role. With a large estate, the evaded inheritance tax can quickly cross the threshold to aggravated tax evasion under Section 370(3) AO. According to case law this threshold lies at an evaded amount of 50,000 euros and raises the sentencing range to between six months and ten years of imprisonment. With very high amounts, a suspended sentence comes into consideration only where particularly weighty mitigating factors are present.

How the evaded tax is actually calculated

How serious the allegation is depends on the tax actually evaded. Inheritance tax is assessed according to the value of the acquisition, the tax class and the allowances.

The tax class depends on the family relationship (Section 15 ErbStG). Spouses and children fall into the most favorable tax class I, more distant relatives and non-relatives into the less favorable classes II and III. The allowances differ accordingly (Section 16 ErbStG): they range from 500,000 euros for spouses and 400,000 euros for children down to only 20,000 euros for non-related heirs. Particularly in inheritances among non-relatives or distant family members, the tax burden - and thus the potential evaded amount - is often considerable.

The valuation of the estate follows the rules of the Valuation Act and Section 12 ErbStG. Real estate is assessed at market value, business assets under special procedures, and precious metals and valuables at their market value as of the date of death. Especially with tangible assets such as gold, jewelry or art, valuation is a field of conflict in its own right that significantly influences the amount of tax and thus of the allegation.

The tax investigation was here - what a search warrant means

When the tax investigation department appears at your door with a warrant, the investigation is already fully under way. A search and seizure warrant is issued by an investigating judge at the local court and permits the search of homes and business premises and the seizure of documents, data carriers and assets.

For those affected, this is a decisive moment - and one in which most mistakes happen. In this situation: stay calm, have the warrant handed to you and read which allegation and which period are named. Make no statements on the substance. You are not obliged to incriminate yourself or to actively assist the search or point out hiding places. Object expressly to the seizure if items are taken - this preserves rights for later.

Voluntary disclosure - and why it is often already barred

Voluntary disclosure leading to exemption from punishment under Section 371 AO is the classic route back to tax honesty in the case of an undeclared inheritance. Anyone who fully and in good time discloses all non-time-barred tax offenses of one tax type and pays the evaded tax plus interest can obtain exemption from punishment.

Strict requirements apply to completeness. A partial disclosure that reveals only part of the concealed assets is insufficient and has no exempting effect. Anyone making a disclosure must make a clean breast of it.

Above all, the word "in good time" is decisive. Voluntary disclosure is barred as soon as one of the grounds in Section 371(2) AO applies - in particular, when the offense had already been discovered and the offender knew this or had to expect it, when the initiation of criminal or administrative-fine proceedings had been announced to the person concerned, or when an official of the tax authority had appeared for an audit. In practice: once a letter from the criminal and administrative-fine unit has arrived or the tax investigation department has appeared, exempting voluntary disclosure regularly comes too late.

Section 398a AO - refraining from prosecution for higher amounts

For an evaded amount over 25,000 euros, a different mechanism takes the place of pure exemption from punishment. Under Section 398a AO, prosecution may be refrained from if, in addition to the evaded tax and interest, an additional sum is paid. This surcharge is graduated: ten percent for amounts up to 100,000 euros, fifteen percent up to one million euros, and twenty percent above that. This route too requires full disclosure and is therefore demanding, but particularly with high amounts it offers an orderly way out of the proceedings.

Subsequent disclosure and cooperation - the actual path of defense

If voluntary disclosure is barred, this does not mean that nothing can be salvaged. On the contrary: the most effective lever in a tax criminal defense is often the complete, orderly subsequent declaration of the inheritance in cooperation with defense counsel.

Anyone who subsequently realizes that a notification or return was incorrect or incomplete is in any case obliged to correct it under Section 153 AO. This correction, properly prepared and introduced at the right time, regularly has a mitigating effect. It shows the prosecution and the court that the accused is disclosing the full facts and cooperating toward a clean resolution. In many cases the proceedings can thereby be discontinued subject to conditions, or the sentence significantly reduced.

This path is demanding because it is the exact opposite of what many affected persons instinctively want to do - namely to move assets, withhold documents or set values aside. Precisely this, however, gives rise to new, additional offenses: anyone who moves concealed inherited assets to place them beyond reach risks allegations such as money laundering under Section 261 of the Criminal Code (StGB), aiding after the fact under Section 257 StGB, or obstruction of enforcement. Orderly disclosure is the path that lowers the penalty; concealment is the path that raises it and turns one tax matter into several proceedings.

"In defending tax offenses, the winner is rarely the one who hides the most. It is the one who first puts the facts on the table, complete and in order."

• →Tom Beisel, Attorney

Limitation periods - why long-past inheritances remain relevant

A common misconception is that a long-past inheritance is time-barred anyway. With undeclared inheritances this is often precisely not the case, for two reasons.

For tax purposes, the assessment period in the case of tax evasion is ten years (Section 169(2) sentence 2 AO). Added to this is the suspension of the start of the period under Section 170(2) AO: if the inheritance was not declared in breach of duty, the assessment period only begins to run after the end of the third year following the inheritance. As a result, the tax office can still assess inheritance tax for inheritances that lie well more than ten years in the past. On the evaded tax, evasion interest of six percent per year also accrues (Section 235 AO), considerably increasing the amount owed.

For criminal purposes, ordinary tax evasion becomes time-barred after five years (Section 78 StGB), but aggravated tax evasion only after fifteen years (Section 376 AO). Particularly with large, undeclared estates, the offense is therefore often still prosecutable when many affected persons have long assumed it to be time-barred.

When several parties are involved - the conflict of interest

Inheritances frequently involve several people: co-heirs in a community of heirs, spouses, partners or family members who were in fact involved. Particular caution is required here. If the interests of the parties diverge or could diverge, a lawyer may not defend several of them jointly (Section 43a BRAO). Each accused person needs a clearly assigned defense of their own.

This is not a formality but of considerable practical importance: statements that benefit one party can harm another. Statements in one set of proceedings can be used in parallel proceedings against another person. It must therefore be clear from the outset who represents whom and which statements are made in which proceedings with what aim.

When several proceedings coincide

Not infrequently, more than just inheritance tax hangs on an undeclared inheritance. If concealed assets are later moved, sold, taken abroad or otherwise used, independent further proceedings can arise - for instance for money laundering, for breaches of customs and foreign-trade declaration obligations, or for income tax evasion if untaxed income has flowed from the assets.

In such constellations it is crucial not to view the proceedings in isolation. A statement in one set of proceedings can have effects in another. Before file access in all affected proceedings, no substantive statement should be made in any of them. The defense must think the proceedings together and develop a unified line rather than reacting to each one separately.

Seizure, asset freezing and confiscation

Within a tax criminal case, the state can access assets to secure the later tax claim and confiscation. Through an asset freeze, accounts can be frozen and objects secured. Seized values remain in state custody for the time being. Whether and when they are released depends on the course of the proceedings.

It is important to understand: attempting to withdraw seized assets, or assets threatened with seizure, from the state's reach is not a viable path but gives rise to new criminal liability. The recovery of assets runs through the legal instruments - through the defense against the allegation, through clarifying the tax debt and through applications in the proceedings - not through unilateral action.

Frequently asked questions - inheritance tax evasion

I failed to declare an inheritance years ago - is it time-barred?

Often not. For tax purposes, in cases of evasion the tax office can still assess tax up to ten years back, with the period beginning later where declaration was omitted. For criminal purposes, aggravated tax evasion only becomes time-barred after fifteen years. Long-past inheritances can therefore still be relevant.

Can I still declare the inheritance retrospectively?

As long as no proceedings have been initiated and the offense has not been discovered, voluntary disclosure can still have an exempting effect. If the tax investigation is already active or proceedings have been announced, disclosure is barred - subsequent declaration then remains as a mitigating route. In both cases the step should be prepared with a lawyer, because an incomplete declaration does more harm than good.

What penalty do I face for inheritance tax evasion?

The range runs from a fine to imprisonment. With an evaded amount from 50,000 euros an aggravated case usually applies, ranging from six months to ten years. Added to this are repayment of the tax and evasion interest of six percent per year. The concrete outcome depends on the amount, conduct and defense.

Do I have to speak with the tax investigators when they are at my door?

No. You must tolerate the search but need not make any statement on the substance or incriminate yourself. It is advisable to have the warrant handed over, to object to the seizure, and to obtain legal advice and file access before any statement.

May I restructure or sell inherited assets while proceedings are ongoing?

This is strongly discouraged. Anyone who moves concealed assets, or assets threatened with seizure, to place them beyond reach risks new allegations such as money laundering or obstruction of enforcement. Recovery runs through the proceedings, not through unilateral action.

What if I knew nothing of the deceased's evasion?

Only those who act intentionally are criminally liable. Anyone who demonstrably had no knowledge of concealed assets does not commit an offense. However, as soon as you subsequently gain knowledge, a duty to correct arises under Section 153 AO. The distinction is demanding in the individual case and should be examined with a lawyer.

What you should do now

If you are under investigation over an undeclared inheritance, or you fear that an inheritance was not handled cleanly for tax purposes, the first steps are decisive. Make no premature statements to the tax office or the tax investigation department. Do not move or hide assets - that only creates new criminal liability. Secure all documents relating to the estate and its valuation. And obtain legal advice as early as possible, so that the line of defense is settled before you declare anything.

Attorney Tom Beisel defends clients nationwide in tax criminal proceedings, including complex inheritance cases with foreign connections and substantial assets. After reviewing the file, I assess which route - voluntary disclosure, subsequent declaration under Section 153 AO, refraining from prosecution under Section 398a AO, or contested defense - is right for you. Discretion is the basis of every engagement.

• →Mobile: +49 172 8974716
• →Office: 0201 4517 380
• →E-mail: kanzlei@rechtsanwalt-beisel.de
• →Address: Bredeneyer Str. 2b, 45133 Essen, Germany

Defense in tax criminal law - nationwide, discreet and with a clear strategy.