Appeal against income tax (Einspruch Einkommensteuer)

The key facts at a glance:

• An appeal (Einspruch) against an income tax assessment notice (Einkommensteuerbescheid) is your central, cost-free legal remedy and a prerequisite for any subsequent action before the tax court (Finanzgericht).
• You must lodge the appeal with the tax office (Finanzamt) in writing or electronically within one month of the notice being announced.
• An appeal succeeds where the tax office has misapprehended the facts, applied tax provisions incorrectly, or failed to observe deadlines and formal requirements.

What is an appeal (Einspruch) in income tax matters?

An appeal gives private individuals and businesses the opportunity to defend themselves against decisions of the tax office (Finanzamt) taken in the course of assessing income tax (Einkommensteuer). An appeal is the legal remedy provided by statute against such tax assessment notices (Steuerbescheide). In the appeal proceedings, a different unit within the tax office reviews the notice afresh. The taxpayer may substantiate his objections and submit further documentation. The tax office may then amend the notice in the taxpayer's favour (grant relief), leave it unchanged, or adjust it only in part.

• Deterioration: You must bear in mind that the authority reviews the notice „in its entirety“ in the appeal proceedings and may also amend it to your disadvantage (known as Verböserung). Before the notice is altered for the worse, however, the tax office must expressly point out the impending deterioration to you and give you an opportunity to comment; you may then withdraw the appeal in order to avoid a deterioration.
• Legal action: If the appeal is rejected in whole or in part, it is subsequently possible to bring an action (Klage) before the tax court (Finanzgericht). With few exceptions, an action is not possible without prior appeal proceedings.

When does an appeal make sense in income tax matters?

An appeal always makes sense where the income tax assessment notice issued is defective and the expected tax refund exceeds the adviser's fees. Because the appeal proceedings are free of charge and each side bears its own costs, there is no cost risk vis-à-vis the tax authorities beyond the adviser's fees. Where the differences are very small, or where the tax office has made an obvious error, a simple application for amendment (schlichter Änderungsantrag) may be a pragmatic alternative.

In what form must I lodge the appeal – and what must it contain?

The appeal must be lodged in the proper form and within the applicable time limit. The competent tax authority examines both carefully; if one of these requirements is not met, the appeal is dismissed as inadmissible.

• Time limit: The appeal must be lodged within one month of the tax assessment notice being announced (§ 355 Abs. 1 AO). Where the notice is sent by post, the four-day fiction of § 122 Abs. 2 Nr. 1 AO applies: the notice is deemed to have been announced on the fourth day after it was posted.

Caution: If the notice contains no instruction on legal remedies (Rechtsbehelfsbelehrung) at all, or an incorrect one, the appeal period is extended to one year (§ 356 Abs. 2 AO). Anyone who culpably misses the deadline may apply for restitutio in integrum (Wiedereinsetzung in den vorigen Stand, § 110 AO) – but only in the absence of fault, which is examined strictly.

• Form: The appeal must be lodged in a formally effective manner. The permissible forms are: in writing (letter, fax), electronically (e.g. via ELSTER or the special electronic mailbox for tax advisers), or recorded on the file at the tax office or the municipality

Caution: A telephone indication that the notice is incorrect, or a declaration by implied conduct, is not sufficient.

• Content: The appeal must contain at least the following:
  
  • Name and address of the sender
  • Designation of the notice being contested (type of tax, assessment period, date)
  • A recognisable declaration of the intention to appeal

Example: „I hereby lodge an appeal against the trade tax (Gewerbesteuer) assessment notice for 2022 dated 15 April 2024.”

• Statement of grounds: There is no obligation to state grounds, but a statement of grounds is strongly recommended. Well-founded grounds considerably increase the prospects of success. The tax office or the municipality may also set a time limit for stating the relevant facts and evidence (§ 364b AO); statements and evidence submitted only after that point may in certain circumstances no longer be taken into account.
  

How do appeal proceedings against an income tax assessment notice work?

Once the appeal has been received, the tax office or the municipality first examines its admissibility (form, time limit, adverse effect). If the appeal is admissible, an examination of the substance follows: the tax office reviews the notice in full – including in the appellant's favour.

The proceedings end either by way of:

• Full relief: The tax office allows the appeal and issues an amended notice.
• Partial relief: The appeal is regarded as well founded in part.  
• Appeal decision: The tax office rejects the appeal as unfounded or dismisses it as inadmissible.

Next steps following a rejection: if the appeal is rejected by an appeal decision (Einspruchsentscheidung), an action may be brought before the tax court within one month. The appeal proceedings must be conducted as a mandatory preliminary procedure.

The duration of appeal proceedings varies considerably – from a few weeks to several years, particularly where fundamental questions of law remain open.