The Federal Fiscal Court (BFH) has ruled that the costs of legal advice and legal disputes directly related to the distribution of an estate are deductible costs when determining inheritance tax (Section 10 (5) no. 3 sentence 1 of the Inheritance Tax and Gift Tax Act). This is also the case if the estate was initially administered by the community of heirs. It was clarified which legal fees can be regarded as costs of the „distribution of the estate“ and are therefore deductible.
The BFH clarified that a community of heirs is fundamentally geared towards the liquidation and distribution of the estate and that organizational and legal costs are inevitably incurred in the process. The costs for legal support in the context of proceedings such as the partition auction (= compulsory auction), which serve to dissolve the community of heirs, are therefore directly related to the distribution process. This also applies if the distribution takes place some time after the inheritance. It is essential that the connection with the distribution of the estate remains clearly recognizable.
Conclusion: Only the costs that directly with the distribution of the estate are deductible. Costs incurred during the phase of pure administration or use of the estate - such as the administration of joint rental accounts - are not deductible. The BFH thus confirmed the ruling of the Cologne Fiscal Court, which recognized the majority of the legal fees claimed by the plaintiff as deductible, with the exception of the costs relating to the management of joint accounts. The tax office's appeal was therefore rejected.