Case analysis, IFI and deductible liabilities

IFI and deductible liabilities: a debt to your own company may be disallowed

A liability of the taxpayer to a company whose heirs are shareholders may be refused as a deduction in the estate, as a liability granted to interposed persons, even if that person is a legal entity. The French Court of Cassation confirms this (Cass. com., 26 November 2025, n° 23-23.086, published in the Official Bulletin): a shareholder current account debt of EUR 422,832 to a family SCI (French co-ownership structure for real estate) was disallowed from the estate's liabilities and from wealth tax, without the tax authority having to invoke the tax abuse procedure. Rendered in succession and wealth tax law, the principle applies equally to IFI (French real estate wealth tax on non-residents), whose article 974, III, of the French Tax Code excludes liabilities contracted with the family circle or a controlled company, unless the taxpayer proves the loan's commercial character. The firm advises taxpayers on securing their IFI liabilities and defending deductions in the event of challenge.

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— En bref
Decision
French Court of Cassation (Cass. com.), 26 November 2025, n° 23-23.086, published in the Official Bulletin
Texts
French Tax Code art. 773, 2° and 885 D; French Civil Code art. 911; French Tax Procedure Law art. L. 64; French Tax Code art. 974 (IFI)
Holding
A legal entity may be an interposed person: the deceased's debt to the SCI of his heirs is not deductible
Procedure
No obligation to invoke tax abuse when the tax authority merely corrects the taxable base
IFI Impact
Article 974, III, excludes liabilities to a controlled company, unless the taxpayer proves the loan's commercial character
- 01

A debt to the family SCI disallowed in the estate

The facts. Upon the death of the manager and usufructuary of a family SCI (French co-ownership structure used for real estate), his shareholder current account was in debit by EUR 422,832: he owed this sum to the SCI. The heirs, all shareholders, deducted this liability from the estate's liabilities and from wealth tax. The tax authority disallowed the deduction.

The principle. Article 773, 2°, of the French Tax Code, applicable to wealth tax by reference to article 885 D, makes non-deductible liabilities granted by the deceased for the benefit of his heirs or interposed persons. Article 911 of the French Civil Code presumes certain natural persons (parents, children, descendants, spouses) to be interposed. The question: may a legal entity also be an interposed person?

The holding. Yes. Although only the persons listed in article 911 are presumed interposed, article 773, 2°, does not exclude that a legal entity may also be interposed. Here, the liability had in reality been granted by the deceased to his heirs through the intermediary of the SCI of which they were all shareholders: it is therefore not deductible. The Court adds that the tax authority, having merely determined the exact taxable base without invoking a fictitious debt or an exclusively fiscal purpose, was not required to invoke the tax abuse procedure (article L. 64 of the French Tax Procedure Law). Appeal dismissed.

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- 02

The decision, point by point

01

The holding: a legal entity may be interposed

The Court refuses to limit interposition to the natural persons listed in the Civil Code.

  • Article 773, 2°, of the French Tax Code excludes from the estate's liabilities debts granted by the deceased to his heirs or to interposed persons
  • Article 911 of the French Civil Code presumes interposition only for certain natural persons (parents, children, descendants, spouses)
  • But this text does not exclude that a legal entity may be deemed interposed, subject to the tax authority proving it
  • In this case, the liability had been granted to the heirs through the intermediary of the SCI of which they were all shareholders: deduction disallowed
02

The IFI scope: article 974, III, of the French Tax Code

Under IFI law, the deductibility of liabilities is governed by article 974, which points in the same direction, even more explicitly.

  • Liabilities contracted by the taxpayer with his own household (himself, spouse, partner, civil partner, minor children) are not deductible, without exception
  • Liabilities contracted with the extended family group (ancestors, adult descendants, siblings) are deductible only if the taxpayer proves the normal character of the loan
  • The same applies to liabilities contracted with a controlled company by the taxpayer and his family, as defined in article 150-0 B ter, III, 2° of the French Tax Code
  • Normal character is assessed notably by reference to the respect of repayment dates, the amount and the actual character of repayments; the tax authority accepts that this clause applies regardless of the form of the debt, whether loan or shareholder current account
03

In practice: proving the normal character of a loan

Economic justification must be prepared upstream, not at the audit stage.

  • Put in place a written agreement for the loan or current account, specifying maturity, rate and payment schedule
  • Respect the payment schedule and document actual repayments, traceable in the company's accounting
  • Particular care with shareholder current accounts: a debtor account means the taxpayer owes money to his company, which is not a deductible liability
  • The tax authority may neutralize the liability at the assessment stage alone, so the taxpayer does not benefit from the procedural protections of the tax abuse procedure: the supporting file must be constituted before filing the return
04

The pitfalls: cap and requalifications

Beyond interposition, IFI liabilities remain governed by specific rules.

  • Cap under article 974, IV: when the taxable estate exceeds 5 million euros and the total of admitted liabilities exceeds 60% of that value, the portion of liabilities exceeding this threshold is deductible only up to 50% of that excess
  • The cap is waived if the taxpayer proves that the liabilities were not contracted with a primarily fiscal objective
  • Bullet loans and loans without maturity are subject to a theoretical tax amortization that reduces the deductible portion each year (article 974, II)
  • A liability disallowed increases the taxable base and may trigger assessments, late-payment interest and penalties over several non-prescribed years
- 03

Our approach

The firm intervenes on IFI deductible liabilities at all stages: review of declared liabilities and shareholder current accounts, formalization of intra-family or intra-group loan agreements and constitution of the file proving commercial character, calculation of the cap under article 974, IV, and defense in the event of challenge, at the rectification notice stage as well as in litigation. The analysis intersects with non-resident taxation and the structuring of real property holdings.

  • IFI
  • Deductible liabilities
  • Shareholder current account
  • Interposed person
  • French Tax Code art. 974
- FAQ

IFI and deductible liabilities: your questions

Is a debt to one's own SCI deductible from IFI?

Not necessarily. Article 974, III, of the French Tax Code excludes liabilities contracted by the taxpayer with a company he controls, alone or with his family group, as defined in article 150-0 B ter, III, 2° of the French Tax Code, unless the taxpayer proves the normal character of the loan: respect of repayment dates, amount and actual character of repayments. A shareholder current account in debit, i.e., an amount the taxpayer owes to his company, directly falls within this anti-abuse clause, regardless of the form of the liability.

What did the French Court of Cassation hold on 26 November 2025?

In decision n° 23-23.086, published in the Official Bulletin, the Commercial Chamber held that a legal entity may be an interposed person within the meaning of article 773, 2°, of the French Tax Code, applicable to wealth tax by reference to article 885 D. The deceased's debt to the family SCI of which his heirs were all shareholders had in reality been granted to those heirs through the intermediary of the company: it was disallowed from the estate's liabilities and from wealth tax. Rendered in wealth tax, the principle is transposable to IFI.

Was the tax authority required to invoke the tax abuse procedure?

No. The Court notes that the tax authority had merely determined the exact taxable base, without invoking a fictitious debt or an exclusively fiscal purpose: it was not therefore required to invoke the procedure in article L. 64 of the French Tax Procedure Law. The practical consequence is important: the taxpayer does not benefit from the procedural protections associated with tax abuse (notably the tax abuse committee). Economic justification of the liability must therefore be prepared upstream of the return filing.

How do I prove the normal character of a family or intra-group loan?

By a body of evidence contemporary with the loan: a written agreement specifying amount, maturity, rate and payment schedule, the actual respect of payment dates and real repayments, traceable in the company's accounting and bank statements. Note: this possibility of proof exists only for liabilities contracted with the extended family group or a controlled company. Liabilities contracted with members of the taxpayer's household (spouse, partner, civil partner, minor children) are never deductible.

What is the cap on IFI liabilities under article 974, IV, of the French Tax Code?

A mechanism specific to substantial estates. When the value of the taxable estate exceeds 5 million euros and the total of admitted liabilities exceeds 60% of that value, the portion of liabilities exceeding this 60% threshold is admitted as a deduction only up to 50% of that excess. The cap is waived if the taxpayer proves that the liabilities were not contracted with a primarily fiscal objective. This calculation is in addition to the screening of liabilities under article 974, III.

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