Undeclared foreign income of the deceased: what heirs must do now under German tax law

The heirs' duty to correct: when must they correct the deceased's returns?

As universal successors (Gesamtrechtsnachfolger), heirs step into the deceased's tax position, and the law expressly obliges them to make corrections. On death, the deceased's estate passes to the heirs as a whole (§ 1922(1) BGB, Civil Code), and with it the claims and debts arising from the tax relationship (§ 45(1) AO, Fiscal Code). This includes the tax and the interest on it, because interest is an ancillary tax payment (steuerliche Nebenleistung) and claims to it count among the claims arising from the tax relationship (§ 3(4) no. 4, § 37(1) AO).

The duty itself is laid down in § 153(1) AO. If a taxpayer realises after the event, before the assessment period expires, that is, the period in which the tax office may still assess tax or amend assessments, that a return filed by the taxpayer or on the taxpayer's behalf is incorrect or incomplete and that this may result or has already resulted in tax being understated, the taxpayer is obliged to report this without delay and to make the necessary correction (sentence 1 no. 1). This duty also applies to the universal successor and to the persons acting for the successor or for the taxpayer under §§ 34 and 35 AO (sentence 2), for example whoever administers the estate on behalf of the heirs, to the extent of that administration (§ 34(3) AO).

Two judgments of the Federal Fiscal Court (Bundesfinanzhof, BFH) show how far the duty reaches. First, earlier knowledge does not release heirs from it: what matters for knowledge acquired after the event is the moment of universal succession, that is, the death. Anyone who already knew during the deceased's lifetime about the investment assets abroad and the incorrect returns is therefore equally obliged to correct them (BFH, judgment of 29 August 2017, VIII R 32/15, para. 30, and judgment of 21 June 2022, VIII R 26/19, para. 29).

Second, the duty applies to every co-heir who recognises the error. In case VIII R 32/15, one of two co-heirs had been involved in preparing the deceased's returns and knew, at the latest from the date of death, that the investment income had been declared too low. She was obliged to correct the returns and, by intentionally failing to do so, committed tax evasion (paras. 3 and 30). The other co-heir argued that she had known nothing (para. 7). That made no difference: she had to accept that the ten-year assessment period applied to her, because the tax assessed too low had also benefited her (paras. 33 to 36).

What applies if the deceased did not file any return at all?

§ 153 AO refers to a return that has been filed. A return in this sense is any statement that influences the assessment, including an invalid one (BFH VIII R 32/15, para. 31). The heirs nevertheless owe the tax for a year without any return, to the extent that it can still be assessed (§ 45(1), § 169(1) AO). If the tax office requests the heirs to file a return, they are obliged to do so (§ 149(1) sentence 2 AO). Whether they must file on their own initiative without such a request is not answered by the wording. The BFH regards heirs as stepping into the deceased's position in procedural terms as well (VIII R 32/15, para. 24), but the question still belongs in advice. For such a year the period starts at the latest at the end of the third year after the tax year, for 2015 therefore at the end of 2018 (§ 170(2) sentence 1 no. 1 AO). If the investment income comes from a state outside the EU and EFTA and is not reported automatically, the period starts at the earliest at the end of the year in which the tax office learns of it and at the latest ten years after the end of the tax year, for 2015 therefore at the end of 2025 at the latest (§ 170(6) AO).

For which years does the duty apply?

The duty exists only as long as the assessment period for the year in question is still running. Its length depends on whether and to what extent tax was evaded or understated through gross negligence (§ 169(2) AO). Its start depends on when the return was filed and, for some foreign income, on the state the income comes from (§ 170(2) sentence 1 no. 1 and (6) AO). Its end can be postponed (§ 171 AO).

Whether the deceased declared too little intentionally, through gross negligence or merely by mistake is often impossible for heirs to say with certainty. Yet this classification determines whether the period is four, five or ten years and is therefore the first point to examine. Tax evasion by an heir can also extend the period to ten years if it is not already that long because of evasion by the deceased (BFH VIII R 26/19, para. 22, and VIII R 32/15, para. 29).

Model case: A mother dies in 2026. She always filed her returns in the following year and deliberately left out the interest on an account with a bank in another EU state. She filed the return for 2015 in 2016: the ten-year period started at the end of 2016 and ends at the end of 2026, for 2016 at the end of 2027, and so on. If the heirs report this while still in 2026, even the period for 2015 does not end before one year after the report is received. If the tax is directed against an estate and the heirs accept the inheritance only after 30 June 2026, it also does not end before six months after acceptance (§ 171(12) AO). Whether this condition is met for the mother's income tax has to be examined in the individual case. If the account were held with a bank in a state outside the EU and EFTA and the interest were not reported automatically, the period for 2015 would start at the end of 2025 at the latest and, in the case of tax evasion, would run until the end of 2035, for 2014 until the end of 2034 (§ 170(6) AO). Older years can also remain open as long as prosecution of a tax offence relating to the same tax is not time-barred (§ 171(7) AO).

Florian Enders on correcting undeclared foreign income of a deceased person

What happens if heirs stay silent?

Anyone who intentionally and in breach of duty leaves the tax authorities unaware of facts relevant for tax purposes and thereby understates tax commits a criminal offence (§ 370(1) no. 2 AO, § 15 StGB, Criminal Code). Heirs who deliberately do not fulfil their duty to correct and thereby understate tax commit an offence of their own (BFH VIII R 26/19, paras. 28 and 29). This also applies to offences committed outside Germany (§ 370(7) AO).

This also affects the period. If tax has been evaded, the assessment period does not end before prosecution of the tax offence is time-barred (§ 171(7) AO). According to the BFH, the heirs' own offence is also sufficient for this (VIII R 26/19, para. 25). In the case decided, the heiresses had already known about their father's foundations abroad during his lifetime and did not correct their parents' joint returns for 1995 to 2001 after their father's death in 2007. The tax office amended the assessments for those years in December 2016, and that was still in time. The reason: the heiresses' own offence was a particularly serious case of tax evasion on a large scale, and under the law then in force prosecution only became time-barred after ten years (para. 31). Staying silent therefore extends the time during which the tax office can demand back taxes, and how long depends on when prosecution of the heirs' own offence becomes time-barred.

For the heirs' own offence, the penalty is imprisonment of up to five years or a fine, and in particularly serious cases imprisonment from six months to ten years (§ 370(1) and (3) AO). Prosecution generally becomes time-barred after five years (§ 78(3) no. 4 StGB, § 369(2) AO), and in the particularly serious cases of § 370(3) sentence 2 nos. 1 to 6 AO after 15 years (§ 376(1) AO). The limitation period starts as soon as the offence has ended (§ 78a StGB). The heirs' omission is generally completed at the point at which the tax office would at the latest have amended the assessment if the correction had been made in time (BFH VIII R 26/19, para. 30).

What does the correction cost, and who pays?

The heirs are answerable for the deceased's tax debts in accordance with the provisions of civil law on the heir's liability for the debts of the estate (§ 45(2) sentence 1 AO). Several heirs are liable as joint and several debtors for the joint debts of the estate (§ 2058 BGB), and for tax purposes each joint and several debtor owes the entire amount unless otherwise provided (§ 44(1) AO). The tax office may choose, at its due discretion, which heir it pursues (BFH VIII R 32/15, para. 23).

Paying early saves interest. Interest on back payments is not to be assessed, or is to be waived, to the extent that payments made before the assessment were accepted by the tax office and credited against the tax assessed later, and the date of each individual payment is what counts (§ 233a(8) in conjunction with (3) sentence 4 AO). Interest on evaded tax runs until the evaded tax is paid; it is not charged for any period for which a late-payment surcharge has been incurred, payment has been deferred or enforcement has been suspended (§ 235(3) sentences 1 and 2 AO).

Inheritance tax depends on the assessment. If the deceased concealed the foreign income in such a way that the tax office could not even theoretically have learned of it, the tax on it was not an economic burden at the time of death. To the extent that it is not assessed later either, it does not reduce the taxable acquisition (BFH, judgment of 28 October 2015, II R 46/13, paras. 16, 18 and 20). According to a decree of the tax authorities of 14 November 2002, which the BFH reproduced in 2015, such taxes can be taken into account if they are actually assessed, even if it is only the heirs who uncover the evasion (para. 17). The BFH left open to what extent assessed amounts are deductible (para. 21). The foreign assets themselves belong in the notification for inheritance tax, see the article Inheritance not reported to the tax office. If the deceased gave away money from the account during their lifetime, the article Unreported Schenkung (gift) in Germany covers the notification.

Liability is limited to the estate if administration of the estate (Nachlassverwaltung) has been ordered or insolvency proceedings over the estate (Nachlassinsolvenzverfahren) have been opened (§ 1975 BGB). Until the estate is divided, each co-heir may generally refuse to settle debts of the estate out of the rest of their assets (§ 2059(1) BGB). If spouses were assessed jointly, each of them may apply for enforcement to be limited to the amount that results from dividing the tax between them (§ 268 AO). The article Inheritance and debts explains when liability can be limited.

Correction or voluntary disclosure: what applies to whom?

The heirs' report under § 153 AO corrects the deceased's returns. A voluntary disclosure under § 371 AO concerns one's own tax offences. For heirs it becomes relevant in three situations:

• Own income after the date of death. From the date of death, the heirs earn the income from the inherited assets themselves. Anyone who lives in Germany or is habitually resident here has unlimited tax liability here and must state taxable investment income without German tax withheld in their own return (§ 32d(3) EStG, Income Tax Act). If it is missing there, the way forward depends on the degree of fault: a correction under § 153 AO if a return already filed is incomplete without any fault, a late report without a fine in the case of gross negligence if the information is provided before the initiation of criminal or administrative fine proceedings for the offence has been notified to the heir or their representative and tax already understated is paid within the reasonable period set (§ 378(3) AO), or a voluntary disclosure in the case of intent.
• Heirs who stayed silent too long. Anyone who deliberately failed to make the report under § 153 AO and thereby understated tax has committed an offence personally, and it concerns income tax. A voluntary disclosure must then cover all of one's own income tax offences, those relating to the deceased's tax as well as those relating to one's own income (§ 371(1) AO).
• Spouses assessed jointly. If spouses opted for joint assessment, they file a joint return signed personally by both (§ 25(3) sentence 2 EStG). If the surviving spouse later realises that it was incomplete, the duty to correct already applies to them for their own return (§ 153(1) sentence 1 AO). If they already knew when signing, it has to be examined whether they themselves can be accused of wrongdoing.

Exemption from punishment through a voluntary disclosure requires that it fully reports all tax offences for the type of tax concerned that are not yet time-barred, at least those of the last ten calendar years (§ 371(1) AO). It comes too late if, beforehand, an audit order or the initiation of criminal or administrative fine proceedings was notified, an official appeared for an audit or an investigation, an official of the tax authority appeared for an inspection (Nachschau) and identified themselves, or one of the offences had already been discovered and the offender knew this or, on a reasonable assessment of the circumstances, had to expect it (§ 371(2) sentence 1 nos. 1 and 2 AO, for audits limited to their scope). Exemption from punishment also does not apply if more than 25,000 euros were evaded per offence or a particularly serious case under § 370(3) sentence 2 nos. 2 to 6 AO exists (§ 371(2) sentence 1 nos. 3 and 4 AO). If tax has already been understated, the taxes evaded in one's own favour, the interest on evaded tax under § 235 AO and the interest under § 233a AO credited against it must be paid within the reasonable period set (§ 371(3) AO). If exemption from punishment fails only because of the monetary threshold or such a particularly serious case, prosecution is dropped if taxes and interest are paid within the period set and an additional sum of 10 to 20 percent of the evaded tax is paid (§ 398a(1) AO). The grounds for exclusion in detail are explained in the article on voluntary disclosure.

§ 371(4) AO links the two routes: if the report under § 153 AO is made in time and properly, a third party who failed to file the returns or filed them incorrectly or incompletely is not prosecuted, unless the initiation of criminal or administrative fine proceedings for the offence was notified to that person or their representative beforehand. If the third party acted for their own benefit, § 371(3) AO applies accordingly. Whom this rule protects in an individual case, for example a spouse who co-signed the joint returns or a relative who prepared the returns for the deceased, is a question for advice.

Step by step: what heirs should do now

1. Secure the documents and destroy nothing: account and securities account statements, tax certificates from the foreign bank, the deceased's tax returns and assessments, correspondence with banks and authorities.
2. Clarify who is under the duty: all heirs who know about the error, whoever administers the estate and, in the case of joint assessment, the surviving spouse.
3. Determine the open years: for each year, check when the return was filed, where the income came from, whether tax evasion is possible and the periods in the table above.
4. Report without delay and make the necessary correction: the co-heirs coordinate so that no contradictory information reaches the tax office, without delaying the report. If one's own conduct is affected, it is clarified beforehand whether the report must at the same time work as a voluntary disclosure and which of one's own years then belong in it.
5. Set money aside for tax and interest: paying early can avoid interest on back payments, and in a voluntary disclosure exemption from punishment depends on payment on time.
6. Keep inheritance tax in mind: notify the acquisition within three months of learning of it, for foreign assets even if a will has been opened (§ 30(1) and (3) ErbStG, Inheritance Tax Act), and claim the deceased's assessed taxes as a debt of the estate.

To have your case evaluated, you can arrange an initial consultation.

Frequently asked questions

I already knew about the account during the deceased's lifetime. Do I still have to correct the returns?

Yes. What matters for knowledge acquired after the event is the death of the deceased, and earlier knowledge does not exclude the duty (BFH VIII R 32/15, para. 30, and VIII R 26/19, para. 29).

As a co-heir, do I have to pay the entire tax?

In principle yes: each joint and several debtor owes the entire amount unless otherwise provided (§ 44(1) sentence 2 AO), and heirs are answerable for the debts of the estate in accordance with the provisions of civil law (§ 45(2) sentence 1 AO). Until the estate is divided, however, each co-heir may generally refuse to pay the tax out of the rest of their assets (§ 2059(1) BGB).

Does the deceased's tax become time-barred after ten years?

For evaded taxes the assessment period is ten years, counted from the end of the year in which the return was filed, at the latest from the end of the third year after the tax year (§ 169(2) sentence 2, § 170(2) sentence 1 no. 1 AO). If someone other than the tax debtor committed the evasion, this does not apply if the tax debtor proves that they obtained no financial advantage from the offence and that it was not due to a failure to take precautions to prevent tax understatement (§ 169(2) sentence 3 AO). For investment income from states outside the EU and EFTA that is not reported automatically, the period can start later (§ 170(6) AO). If heirs deliberately fail to make the correction and thereby understate tax, the period does not end before prosecution of their own offence is time-barred (§ 171(7) AO, BFH VIII R 26/19). Once the tax has been assessed, a separate limitation period applies to payment, ten years in the case of tax evasion (§ 228 AO).

Is my report as an heir a voluntary disclosure?

If you make the report without delay and make the necessary correction, you fulfil your duty under § 153 AO for the deceased's tax. If you postponed the report despite knowing about the error and tax was understated as a result, this may constitute tax evasion of your own (BFH VIII R 26/19, paras. 28 and 29). Your report must then also meet the requirements of a voluntary disclosure under § 371 AO if it is to protect you from punishment.

Sources, assumptions and limits of this article

Assumptions: succession under German inheritance law, the deceased had unlimited income tax liability in Germany in the years concerned, income tax. Open questions to examine: how the deceased's understatement is to be classified, whether after death the deceased's own offence also suspends the expiry of the period under § 171(7) AO, whether heirs must file returns without a request for years in which none was filed, for which period interest on evaded tax is assessed against the heirs, whom § 371(4) AO protects in an individual case, whether the deceased's income tax is directed against an estate within the meaning of § 171(12) AO in the individual case, from which state investment income within the meaning of § 170(6) AO comes if the securities account and the payer of the income are in different states, whether the tax authorities still apply the decree of 14 November 2002, the applicable double tax treaty, when the heirs' own offence has ended in the individual case. Not covered: inheritance and gift tax beyond the deduction as a debt of the estate and the notification period, tax liability under other provisions (§ 45(2) sentence 2 AO), enforcement against heirs, disclaiming the inheritance, the separate determination of joint income of a community of heirs, foreign inheritance and tax law, investment funds, solidarity surcharge, church tax. Case law: BFH, judgments of 29 August 2017, VIII R 32/15, of 21 June 2022, VIII R 26/19, and of 28 October 2015, II R 46/13, read in full. Statutory texts: official collection on gesetze-im-internet.de, last checked against the server on 5 November 2026, read on 6 November 2026.

This article provides general information and does not replace advice in an individual case.