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The Adoption Tax Credit

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IRS LINK: ADOPTION TAX CREDIT

Recently, Abrazo has been deluged with requests for fee receipts for adoptions done years ago.

It seems that somewhere, someone has posted information online suggesting that the current adoption tax credit refund is somehow retroactive to adoptions finalized years back, regardless of whether the existing adoption tax credit was already claimed? The few adoption experts Abrazo has contacted around the country say they know nothing of any such opportunity, but for those who are seeking documentation for this reason, PLEASE USE YOUR CANCELLED CHECKS AS RECEIPTS FOR TAX PURPOSES.

Given that Abrazo's accounting is not done "in-house", we unfortunately do not have onsite accounting staff available to reconstruct verified fee receipt records for the last 17+ years worth of placements, and with banks no longer providing fullsize check images with deposit records, we have no means of providing documentation of individual cancelled check numbers for placements completed across the past decade or more. Abrazo's written policies state that the agency's charge for accounting research requests is $50/hr; we can hire an accounting temp for those who desire such service, but it may be more cost-effective and quicker to use cancelled checks, instead.

We would, however, encourage those seeking the alleged tax benefit to consult qualified CPAs, as the online information we have found seems to indicate it is only retroactive to those who adopted after 1/1/10. Good luck!

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I would suggest that families call the IRS- like I did:) They are the ONLY ones with the correct info!

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I'm thinking this may help to explain some of the confusion over IRS adoption tax credits and refunds this year...

HUGE SNAFU AS IRS FAILS TO ISSUE CORRECT REFUNDS IN ADOPTION CASES.

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It is very frustrating! We are waiting to get the last of our credit from finalizing our daughter's adoption in 2008, and have never had problems until this year. I understand the IRS is being diligent, but why not request the information they need on the front end, so that these refunds are not delayed. Guess that would be too efficient for our FEDERAL GOVERNMENT!

(Also, I just love the comment from the dork who said that tax payers shouldn't have to fund our adoptions!! What?! I don't think a credit for expenses we paid is the same as tax-payer funded, or am I missing something?)

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I can't pull up that article Elizabeth.

I would love to read it since I am one of the "lucky" families that have been chosen to be reviewed due to the adoption credit carry-over from last year. Yay me!

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(Also, I just love the comment from the dork who said that tax payers shouldn't have to fund our adoptions!! What?! I don't think a credit for expenses we paid is the same as tax-payer funded, or am I missing something?)

It's actually true. Yes we pay adoption fees but we pay them to abrazo (or others). Then the federal govt gives us back about $10k in income tax credits. No special interest group is funding adoption credits for the government. Whatever amount income tax revenues would have been are lower because of the adoption credit.

I don't take political stances on all of this just trying to clear up confusion.

Let's also remember that the IRS did not cause the change in the adoption credit. Law makers made that change VERY late in year last year and the IRS is juggling as best it can given such late notice. I would encourage everyone to share their frustration with their lawmakers.

I am happy to vent about IRS weaknesses anyday but in this case I believe it is not their fault.

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(Also, I just love the comment from the dork who said that tax payers shouldn't have to fund our adoptions!! What?! I don't think a credit for expenses we paid is the same as tax-payer funded, or am I missing something?)

It's actually true. Yes we pay adoption fees but we pay them to abrazo (or others). Then the federal govt gives us back about $10k in income tax credits. No special interest group is funding adoption credits for the government. Whatever amount income tax revenues would have been are lower because of the adoption credit.

I don't take political stances on all of this just trying to clear up confusion.

Let's also remember that the IRS did not cause the change in the adoption credit. Law makers made that change VERY late in year last year and the IRS is juggling as best it can given such late notice. I would encourage everyone to share their frustration with their lawmakers.

I am happy to vent about IRS weaknesses anyday but in this case I believe it is not their fault.

Not trying to be political either, but to me there is a difference in a tax credit (which I agree does result in lower tax revenues) and tax-payer funded.

Good point about lawmakers vs. IRS being responsible for this mess.

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Not trying to be political either, but to me there is a difference in a tax credit (which I agree does result in lower tax revenues) and tax-payer funded.

We as taxpayers collectively fund the government and all it's spending. So if we invest our tax dollars into the govt and the govt spends some of it in adoption credits. Then the adoption credit is taxpayer funded. Unless there are donations being made from outside parties or organizations to fund that credit, it's taxpayer money.

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I agree that it is taxpayer money but the way I see it, it's also taxpayer money that funds medicaid, welfare, and other govt programs that some of these children may have needed if they weren't placed for adoption (maybe just saving some spent $ in the future or coming out even in the long run anyway). To me, it's worth the tax credit to help ease the financial burden on families who would like to adopt to not only fulfill dreams of having children but to help some of these children get out of the economic cycle that their parents may be involved in. And we all know that there are programs where there is over-spending that are not being scrutinized and also other revenue sources that are not being explored/used. It will forever be a debate about tax $ and what they should be used for, but in my opinion the adoption credit is totally worth it!

Of course, I am biased on the subject to start with. ;) And that also concludes my political statement for the year since I usually don't voice my opinion on forums like these.

Edited by Jocelyn

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Not trying to be political either, but to me there is a difference in a tax credit (which I agree does result in lower tax revenues) and tax-payer funded.

We as taxpayers collectively fund the government and all it's spending. So if we invest our tax dollars into the govt and the govt spends some of it in adoption credits. Then the adoption credit is taxpayer funded. Unless there are donations being made from outside parties or organizations to fund that credit, it's taxpayer money.

Not to beat a dead horse, but if I buy an energy-efficient hot water heater and then take a tax credit for it, is my hot water heater tax-payer funded?

The adoption tax credit is only up to a certain amount of adoption expenses, and (until this year, from what I understand) cannot exceed your tax liability but can be carried over for subsequent years, so it's not affecting anyone else's taxes but my own. The government is not spending part of someone else's money to give me a tax credit, they are simply returning some of my tax money to me. I understand this results in decreased revenue, but so does energy tax credits, child tax credits, and earned income tax credits.

I "get" what you're saying Suzi, I just don't see it the same way. But you are the CPA and I'm not! :)

Elizabeth, feel free to move this discussion since it has absolutely nothing to do with what's going on back at the ranch! ;)

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I agree that it is taxpayer money but the way I see it, it's also taxpayer money that funds medicaid, welfare, and other govt programs that some of these children may have needed if they weren't placed for adoption (maybe just saving some spent $ in the future or coming out even in the long run anyway).

Although technically, given the hundreds of thousands of dollars in taxpayer money that also subsidizes the related prenatal costs of delivering birthmoms on Medicaid and the expense of the birth and postpartum care for the moms (and their babies, should the nursery bills get charged to Medicaid or if the hospital(s) apply for separate policies to cover NICU bills for babies being placed), some might justifiably argue that there is considerable taxpayer-investment in domestic adoption cases, even before you figure in the adoption tax credit/refund.

Frankly, I think the adoption tax credit should be split between the parents who are placing and the parents who are adopting...

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How would splitting the adoption credit work in special needs cases like foster care??? These birth parents do not always voluntarily place!

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My understanding is that the adoption credit was created to encourage adoption (from an ap standpoint). whether or not the credit should be around, for childless couples with two income earning potential and huge amounts of motivation its helpful but a deal breaker. the credit definitely helped it be more feasible for ben and I to adopt our 2nd son but I don't think it factored into our decision to adopt either kid. the thing I do wish is that employers and health insurance companies treated aps the same as parents who birth babies. so many do not.

elizabeth wouldn't an adoption credit for birth parents just result in the govt paying for babies? The adoption process currently allows for agencies and aps to cover birthparent expenses so any adoption credit from the irs would be profit?

Edited by suziandben

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My understanding is that the adoption credit was created to encourage adoption (from an ap standpoint). whether or not the credit should be around, for childless couples with two income earning potential and huge amounts of motivation its helpful but a deal breaker. the credit definitely helped it be more feasible for ben and I to adopt our 2nd son but I don't think it factored into our decision to adopt either kid. the thing I do wish is that employers and health insurance companies treated aps the same as parents who birth babies. so many do not.

elizabeth wouldn't an adoption credit for birth parents just result in the govt paying for babies? The adoption process currently allows for agencies and aps to cover birthparent expenses so any adoption credit from the irs would be profit?

I agree with Suzi- it does sound like the government would be paying for babies:(

My understanding is that the adoption credit was created to encourage adoption (from an ap standpoint). whether or not the credit should be around, for childless couples with two income earning potential and huge amounts of motivation its helpful but a deal breaker. the credit definitely helped it be more feasible for ben and I to adopt our 2nd son but I don't think it factored into our decision to adopt either kid. the thing I do wish is that employers and health insurance companies treated aps the same as parents who birth babies. so many do not.

elizabeth wouldn't an adoption credit for birth parents just result in the govt paying for babies? The adoption process currently allows for agencies and aps to cover birthparent expenses so any adoption credit from the irs would be profit?

I agree with Suzi- it does sound like the government would be paying for babies:(

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Thought it would be timely to bring this topic back to life.

Has anyone successfully claimed the Adoption Tax Credit? Any tips / suggestions for those who placed in 2011 and those hoping 2012 will be their year?

Lisa

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I included a copy of every check with an explanation next to each one. Include the adoption decree also. Good luck! It took us eight months and now I received a form from the IRS telling me how much interest to put on our tax return this year. Think I can wait 8 months?

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We did a spreadsheet with all the dates, amounts with paid to who and details of what it was for. We copied all checks and receipts and included the final adoption decree. We sent it all in to the IRS but were then asked to resend so please make sure to keep a copy.

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I just called Abrazo on this today. It can be complicated and talking to tax advisor doesn't always clarify. There is a free online tutorial at adoptionlearningpartners.org helped give an overview. Good Luck! After we file I will post what I've learned.

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From another site...

The extension of the Bush Tax cuts extended the credit until December 31, 2012, but with the following modifications:

A. The amount for 2012 will be $12,170/child.

B. The tax credit will not be refundable. This means to get the full refund, you must owe at least $12,170 in taxes.

Hope this is helpful.

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From another site...

The extension of the Bush Tax cuts extended the credit until December 31, 2012, but with the following modifications:

A. The amount for 2012 will be $12,170/child.

B. The tax credit will not be refundable. This means to get the full refund, you must owe at least $12,170 in taxes.

Hope this is helpful.

Hmmmm...."B" sounds like the way it was before 2011, but I wonder if you will be able to carry over the credit to the next year(s) if you do not owe at least $12,170. In the past you could, but last year they made the tax refundable, which opened up a HUGE can of worms. And made it very difficult to get your refund. We filed in January and did not get a refund until July (and we were just using the last bit of credit from 2008 finalization of our daughter's adoption). Had to send in proof of adoption and proof of expenses, which we did, but it still wasn't until a taxpayer advocate got involved that we were able to finally get our refund.

My advice...send what they ask for--verification of adoption (final adoption decree with judge's seal) and verification of expenses (we sent copies of canceled checks) and make extra copies of everything you send because you may have to send it again!

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Thanks for the responses. It seems like the overall theme is keep your canceled checks, make copies, send everything the IRS asks for and finally be prepared to wait a while.

I really appreciate the feedback.

Lisa

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If you did not send in all adopt tax credit for the five years prior to 2010- refile! We did and received a FULL refund for all our adoptions. Remember to paper file and send all supporting documents! There was a lot of misinformation on the web, attorneys and agencies. The refund did go back 5 years and was refundable not a tax credit!!

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Jenn...first - I LOVE your new profile pic. LOVE LOVE LOVE!!!!!

Our adoption homestudy agency here put us in touch with a CPA in Charleston who has experience with adoption tax laws. According to her, we are able to claim our adoption expenses from 2010 even though the adoption is not finalized. So...travel and application and education/escrow fees look like they will qualify. I surely hope so so we can pay off some debt and sock some away for the Disney Fund :-))))))). She said that the IRS frequently kicks the request back as denied....and that you have to jump through some hoops to please them but they eventually will approve it. That said I would strongly recommend enlisting the help of someone who has experience with this. Good luck everyone.

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Ok - I am confused.....but this was from the IRS site ( http://www.irs.gov/newsroom/article/0,,id=220809,00.html ) - updated 1/3/2012. Spotlights the need for an experienced CPA!

Adoption Credit

The Affordable Care Act raises the maximum adoption credit to $13,360 per child, up from $13,170 in 2010 and $12,150 in 2009. The adoption tax credit is refundable for tax year 2011, meaning that eligible taxpayers can get it even if they owe no tax for that year. In general, the credit is based on the reasonable and necessary expenses related to a legal adoption, including adoption fees, court costs, attorney’s fees and travel expenses. Income limits and other special rules apply. In addition to attaching Form 8839, Qualified Adoption Expenses (see instructions), eligible taxpayers must include with their 2011 paper tax return one or more adoption-related documents to avoid delaying their refund. Taxpayers may also be asked, after filing their returns, to substantiate any qualified adoption expenses they paid.

For other information, see our news release, tax tip, questions and answers, flyer, Notice 2010-66, Revenue Procedure 2010-31, Revenue Procedure 2010-35 and Revenue Procedure 2011-52.

http://www.youtube.com/watch?v=eQryETwRziA&feature=email

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The second os a video but older......

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