The judgment of the Bundesfinanzhof (BFH, Federal Fiscal Court) of 19 August 2026 (case no. X R 8/25) concerned a dispute over the lawfulness of an amended income tax assessment for 2001. The central issue was whether the limitation period for tax assessment had been suspended by investigative measures undertaken by the tax investigation authorities pursuant to § 171 Abs. 5 Satz 1 AO (German Fiscal Code).
Suspected Income Tax Evasion
In the year in dispute, 2001, the claimant operated a commercial sole proprietorship. Her brother acted as her tax adviser, while his wife was the managing director of the sole proprietorship. As at 31 December 2003, the claimant transferred the business to her sister-in-law by way of a gift.
The claimant filed her income tax return for 2001 in 2002. The tax office subsequently issued an income tax assessment on 6 March 2003 in accordance with the return, subject to review pursuant to § 164 AO.
A search of the sole proprietorship’s business premises took place on 3 May 2006. Initially, it was not directed against the claimant but against her sister-in-law’s mother. After the tax investigation officer established that he was investigating the wrong person, he initiated tax-criminal investigation proceedings against the claimant on the same day on suspicion of income tax evasion for 2001. However, the claimant was not formally notified that the investigation proceedings had been initiated.
Tax-Criminal Proceedings Discontinued
The claimant learned of the search and subsequently instructed a lawyer to represent her in the investigation proceedings. The lawyer applied several times for access to the investigation files. However, the fines and criminal matters office rejected the applications.
No Intentional Conduct Proven
The tax-criminal proceedings against the claimant were discontinued on 13 January 2010 pursuant to § 170 Abs. 2 StPO (German Code of Criminal Procedure), as intentional conduct could not be proven. In 2012, however, a fine was imposed on her for reckless understatement of tax.
Tax Assessment Amended
In the meantime, on 28 January 2010, the tax office had issued an amended income tax assessment for 2001. It substantially increased the profit from commercial activities because certain expenses previously recognised as business expenses were no longer accepted as reducing taxable profit.
The claimant challenged this amended assessment on the grounds that the limitation period for tax assessment had already expired. By contrast, the tax office took the view that the expiry of the limitation period had been suspended by the investigative measures undertaken by the tax investigation authorities pursuant to § 171 Abs. 5 Satz 1 AO. The Finanzgericht (Fiscal Court) ruled in favour of the claimant.
BFH Rules on Limitation Period for Tax Assessment
In case X R 8/25, the BFH had to decide whether the amended assessment had been issued within the limitation period for tax assessment.
The Bundesfinanzhof dismissed the tax office’s appeal on points of law as unfounded, thereby upholding the judgment of the Finanzgericht Münster (Münster Fiscal Court).
Requirements for Suspension of Expiry
The BFH clarified that the suspension of expiry under § 171 Abs. 5 Satz 1 AO is subject to two essential requirements: first, objectively, it must be limited to the matters that were actually the subject of the tax investigation; second, subjectively, the taxpayer must be able to identify the specific set of facts to which the investigation relates.
It is therefore insufficient for the taxpayer merely to know that the tax investigation authorities are investigating them. Rather, the taxpayer must also be able to identify the specific tax-relevant matters that are the subject of the investigation.
Specific Knowledge Required
In the case at issue, it was undisputed that the claimant was aware of the investigative measures directed against her. However, it could not be established that, before the limitation period for tax assessment expired, she was also aware of the specific sets of facts to which the investigation related.
In particular, the inventory of seized items did not indicate that the tax investigation authorities were investigating certain commission payments to relatives and a potentially fictitious invoice issued by a GmbH (German limited liability company).
Limitation Period for Tax Assessment Had Already Expired
The claimant did not receive specific information concerning these matters until the criminal investigation report of 2 November 2009 and the tax investigation report of 16 November 2009. By that time, however, the limitation period for tax assessment had already expired.
The BFH therefore confirmed that the requirements for suspension of expiry pursuant to § 171 Abs. 5 Satz 1 AO were not met.
The amended assessment of 28 January 2010 was therefore issued after the limitation period for tax assessment had expired and was unlawful.
Requirements for the Identifiability of Investigative Measures
The BFH’s decision is based primarily on the interpretation of § 171 Abs. 5 Satz 1 AO and the question of what requirements must be applied as regards the taxpayer’s ability to identify investigative measures undertaken by the tax investigation authorities.
Objective Requirements for Suspension of Expiry
The BFH first considered the objective scope of the suspension of expiry under § 171 Abs. 5 Satz 1 AO.
Under this provision, the limitation period for tax assessment does not expire if, before its expiry, the tax investigation authorities commence investigations into the bases of taxation at the taxpayer’s premises. However, the suspension of expiry applies only to the extent actually covered by the investigation.
The BFH expressly clarified that the suspension of expiry under § 171 Abs. 5 Satz 1 AO does not cover the entire tax claim, but only those matters that were the subject of the investigation.
In support of this conclusion, the BFH drew a comparison with § 171 Abs. 4 AO. While an external tax audit may generally cover entire categories of tax and assessment periods, investigations by the tax investigation authorities are usually limited to specific tax-relevant matters.
This follows in particular from the different purposes of the respective measures. While an external tax audit serves to comprehensively determine the taxpayer’s tax affairs, pursuant to § 208 Abs. 1 AO, the tax investigation authorities are tasked in particular with investigating criminal tax offences and administrative tax offences and determining the relevant bases of taxation.
It follows that the suspension of expiry under § 171 Abs. 5 Satz 1 AO arises in relation to specific matters and is therefore limited in scope.
Consequently, it extends only to those tax claims arising from the specific matters under investigation.
Subjective Requirements: Identifiability of Investigative Measures
Of particular significance is the BFH’s clarification of the subjective requirements under § 171 Abs. 5 Satz 1 AO.
Under previous case law, it was disputed how far the taxpayer’s required ability to identify the investigative measures had to extend.
One view previously taken within the BFH was that it could be sufficient for the taxpayer to recognise that tax investigations were being conducted against them. According to that view, specific knowledge of the individual matters under investigation was not required.
By contrast, the VIII. Senat (Eighth Senate) had imposed stricter requirements in its judgments of 3 July 2018 – VIII R 9/16 and VIII R 10/16.
Accordingly, the taxpayer must not only be able to recognise that investigations into their tax affairs are taking place. Rather, the taxpayer must also be able to identify the specific set of facts to which those investigations relate.
The X. Senat (Tenth Senate) has now expressly endorsed the stricter view taken by the Eighth Senate.
In support of its decision, the BFH stated in particular that the objective and subjective requirements of § 171 Abs. 5 Satz 1 AO must be consistent with one another.
Since, objectively, the suspension of expiry covers only those matters that are actually the subject of the investigation, the taxpayer must also be able to identify which matters are being investigated.
In addition, the BFH referred to the legislature’s intention. The legislature sought to ensure that the taxpayer becomes aware that the suspension of expiry has taken effect. Merely knowing that an investigation is being conducted against the taxpayer does not satisfy this protective purpose if the specific subject matter of the investigation cannot be identified.
Requirements for Suspension of Expiry Not Met
The BFH concluded that the requirements for suspension of expiry had not been met.
Although the claimant was aware of the investigative measures undertaken by the tax investigation authorities, the Fiscal Court was unable to establish that she was also aware of the specific sets of facts to which the investigation related.
In particular, the inventory of seized items did not provide sufficient information to show that the tax investigation authorities were investigating commission payments to relatives and a potentially fictitious invoice issued by a GmbH.
In the BFH’s view, the fact that the claimant knew that her commercial income was the subject of the investigation and that accounting records had been seized was likewise insufficient.
It was also particularly relevant that the claimant’s lawyer had repeatedly applied for access to the files without success. Had access been granted, the lawyer—and therefore the claimant—could have learned of the specific sets of facts under investigation.
However, the claimant did not receive the relevant information until the investigation reports issued in 2009. By that time, the limitation period for tax assessment had already expired.
Practical Significance of the Judgment
With its judgment of 19 August 2026 – X R 8/25, the BFH clarified the requirements for the suspension of expiry under § 171 Abs. 5 Satz 1 AO and resolved the previous divergence of opinion within its case law.
The key finding of the decision is that the taxpayer’s mere knowledge of investigative measures directed against them by the tax investigation authorities is insufficient. Rather, before the limitation period for tax assessment expires, the taxpayer must also be able to identify the specific set of facts that is the subject of the investigation.
Assessment of Tax-Law Issues
The decisions illustrate that tax consequences frequently depend on the precise determination of
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the relevant facts,
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the sequence and timing of events, and
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the applicable statutory requirements.
Companies, investors and private individuals may contact MTR Legal with questions concerning the matters discussed. Further information is available from its tax law advisory practice.
