German Pension Audits Cause Confusion

Tax practitioners, financial advisors and their clients should be aware of a new audit focus for taxpayers reporting German pensions which they were entitled to receive prior to 2005.

These taxpayers qualify for a 50 percent exemption on Line 256; however, that exemption will become a fixed amount, in Euros, starting in tax year 2007, based on the amount of qualifying pension income received by the client in 2006. Once the fixed amount has been calculated, it is used for the balance of the taxpayer's lifetime, except in the year of death.