Federal Fiscal Court (BFH) rules on the deductibility of taxes as estate liabilities

The deductibility of taxes as estate liabilities pursuant to Section 10 (5) No. 1 of the German Inheritance Tax Act (ErbStG) was the subject of a recent ruling by the Federal Fiscal Court (BFH, ruling dated May 10, 2023 - II R 3/21). Specifically, in the case in dispute, the deductibility of the income tax (including church tax and solidarity surcharge) incurred as a result of the subsequently declared (by the heirs) termination of an agricultural and forestry business (Section 16 (3b) sentence 2 and Section 14 (1) sentence 2 EStG) was at issue. The BFH confirmed the opinion of the lower court and denied the deductibility due to the “inducement” of the tax by the heirs themselves.