Loss Due to Fraud: No Tax Deduction as an Extraordinary Burden
If a person is deprived of their assets through deception, this often represents not only a significant financial loss but also a severe emotional burden. However, the tax treatment of such losses is clearly regulated, as illustrated by a recent decision of the Münster Fiscal Court (Case No. 1 K 3602/5 E; ruling dated 15.09.2025). Losses resulting from fraud do not qualify as extraordinary burdens within the meaning of Section 33 of the German Income Tax Act (EStG).
Facts and Procedural Classification
In the underlying case, the plaintiff was a victim of a complex investment fraud and lost a substantial amount of money. After the failure of criminal and civil remedies to recover the amount, he applied for recognition of the resulting loss as an extraordinary burden for tax purposes. This was intended to reduce the taxable income base.
The tax office rejected the application, against which the taxpayer filed a lawsuit. Ultimately, the Münster Fiscal Court confirmed the legal view of the tax office and dismissed the claim.
Applicable Legal Foundations
Concept and Requirements of Extraordinary Burden
Under certain circumstances, income tax law provides that extraordinary burdens can lead to a reduction of the taxable income. However, it is a prerequisite that the expenses are incurred compulsorily by the taxpayer, are extraordinary, and constitute a significant economic burden (§ 33 para. 1 EStG).
In addition to the general characteristics, case law specifically requires compulsoriness in a narrow sense. This means that the taxpayer could not avoid the expenses for legal, factual, or ethical reasons. The court particularly focused on this point in cases of fraud.
Compulsoriness and Personal Responsibility
The Fiscal Court emphasized that asset losses due to fraud generally do not arise compulsorily in the tax law sense. The decision to conclude the fraudulent transaction was a matter of personal responsibility. Even if the deception was difficult to detect, there is no case where a person was objectively forced to make the payment. Consequently, the tax-required compulsoriness is lacking.
Furthermore, tax recognition of the loss might be conceivable if an unavoidable event, such as a natural disaster or criminal acts by third parties in a typical emergency situation, occurred. In contrast, with fraud—especially related to investments or alleged business transactions—the highest court rulings recognize no exception.
Relationship to Other Compensation Options
The lack of tax recognition does not preclude asserting other civil or criminal law claims. Insofar as repayments are actually obtained during investigation or insolvency proceedings, these must be taken into account in the respective assessment period. The injured party has broader instruments under civil and criminal law to assert and enforce these claims. The tax classification of the loss remains independent of this.
Outlook and Summary of the Decision
The decision of the Münster Fiscal Court makes clear that tax law, in principle, does not recognize losses due to fraud as extraordinary burdens. Legal certainty and clear differentiation from other types of expenses take priority. This avoids extending tax benefits to isolated cases of financial misfortune where the taxpayer’s volition—albeit influenced by deception—was formally present.
An alternative classification would, according to the court, require that the taxpayer was affected completely without their own contribution and inevitably. For fraud-related asset loss, this is ruled out by existing case law and established administrative practice.
Source and Legal Notice
The presented decision of the Münster Fiscal Court (Case No. 1 K 3602/5 E) is currently legally binding. Possible legal remedies and any appeals for supreme court clarification are, as far as can be seen, not pending. A conclusive assessment remains reserved for potential future, possibly diverging cases.
If you have questions on the legal classification of asset losses, tax obligations, or possible courses of action in individual cases, the attorneys at MTR Legal, a nationwide law firm, are available for individual and confidential advice.
