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The Adoption Tax Credit

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Leah - We did it all on our own. I don't know if we would have gotten it turned around any faster had we used a CPA but I think our timeline was fairly typical. I hope you are well on your way to getting it all back!

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Beth,

Thanks! Now, if we can just receive the letter stating what they need prior to us moving next month, that would be wonderful!

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I think the letter came fairly quickly if I remember correctly. We basically re-sent everything we had already given them with a little more detail about each expense we had claimed. There will be a number to call included and I would suggest calling them before you send everything back in to see if at least that person on the line believes you are missing anything. They basically just told us to send everything in again and it worked but I'm glad we called first so we didn't have to do 2 or 3 rounds of back and forth.

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Melissa - if you need to know what all we sent in, just let me know and I'll dig it up. I hope you will get your full refund SOON!

Our CPA specializes in this! Both times the IRS has come back asking for things, it was something we'd already sent (and had copies of having sent in!) Our poor CPA is ready to bang his head on the wall, I think. I feel like we're always the exception to the rule in some way in our lives, so I can't say I'm surprised when things like this happen. I'm just trying to sit back and smile that maybe God is putting us on hold for a little while longer. :)

You have the right to call the IRS taxpayer advocate service when the "normal" IRS channels cause you undue hardship. In other words the IRS taking way too long is affecting your ability to move forward with other plans. Google IRS taxpayer advocate and call. Your CPA does not need to call you can take care of it yourself.

Actually I have it right here. IRS Taxpayer advocate 877-777-4778

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Wow, Melissa I can not believe you are still waiting. What a nightmare, very thankful I did not have to deal with that junk this year, although it means my little baby is no longer a baby.

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Thanks, Melissa... hoping this is all over soon.

Suzi - our CPA told us about the advocacy line and said it was the next step for us after he tried a couple of things. He said that in his experience, however, since we appear to be sooo close to a resolution, the advocacy group would launch an investigation that could likely hold us up for even longer. We are hoping to have some new news early next week and then we'll move on to the advocates. Thanks for the info, though... I'm about a step away from taking this into my own hands.

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Melissa - if you need to know what all we sent in, just let me know and I'll dig it up. I hope you will get your full refund SOON!

Our CPA specializes in this! Both times the IRS has come back asking for things, it was something we'd already sent (and had copies of having sent in!) Our poor CPA is ready to bang his head on the wall, I think. I feel like we're always the exception to the rule in some way in our lives, so I can't say I'm surprised when things like this happen. I'm just trying to sit back and smile that maybe God is putting us on hold for a little while longer. :)

You have the right to call the IRS taxpayer advocate service when the "normal" IRS channels cause you undue hardship. In other words the IRS taking way too long is affecting your ability to move forward with other plans. Google IRS taxpayer advocate and call. Your CPA does not need to call you can take care of it yourself.

Actually I have it right here. IRS Taxpayer advocate 877-777-4778

I was going to suggest the same thing. We were actually referred to a taxpayer advocate last year by someone at the IRS because of not receiving our adoption tax credit after we had submitted all requested paperwork (but I understand like Suzi said that you can request one yourself). It helped us to get a quick resolution.

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Does anyone know if maternity expenses paid for a failed match are deductible? Or would this be included in the fees that are applied toward the adoption credit after the next finalization? Just wondering since we incurred the maternity expenses in 2012 and won't have a finalization until 2013 at the soonest. I put a call into my CPA but haven't heard back yet - wondering if anyone has any experience with this.

Thanks!

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Scott - this was posted a little earlier in the thread:

Thanks for all the great info. I am going to have to read through in depth. Per Melissa's post little confused if our first failed match would count as its own attempt, meaning two separate refunds since it was the same tax year and Colin's adoption won't be final until 2012.

Guess I'll find out when we meet with accountant. Good thing I kept good records.

Your accountant will be able to clarify this, but because some of your expenses were incurred in 2010, you can actually apply for your tax credit now (that is,if things haven't changed since we did this -- we were advised that we should go ahead and apply and not wait until the following year).

Our situation was similar to yours - we went to orientation in 2008, took placement of Hugo in 2009, and finalized in 2010. But all of our expenses from 2008 (agency fees, orientation, travel expenses, escrow expenses, etc) added up to just shy of the credit amount, so we filed for the credit on our 2009 taxes (in 2010 - BEFORE we finalized) and got it, no problem. Then we filed for the remaining amount of the credit on our 2010 taxes, after we finalized.

Just seemed like if we could get a chunk of the credit a year earlier, why wait? Anyway, hope this makes sense and hope your accountant is helpful!

Given what I know about our accountant I think we should do some more research and see what we can find because last time she gave us bad info on what needed to be sent in for documentation of the credit. She's good with farm taxation but not adoption. :blink:

Edited by Jocelyn

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So my new year's resolution should be that when I have a question about something I should ask my wife first...

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So my new year's resolution should be that when I have a question about something I should ask my wife first...

You're learning :D

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Good luck with that New Year's resolution... but yes, Scott, I believe Tara is correct! Since you didn't take placement of any other child in 2012, you should be able to claim the funds lost in your failed match for last year? (Where is Suzi G. when we need her accounting expertise?)

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So my new year's resolution should be that when I have a question about something I should ask my wife first...

Ha Ha! I think that should be every husband's resolution! ;)

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If I remember correctly (and I defer to Suzi if she knows differently), if you/we (since we're in the same situation) haven't finalized in 2012, we could claim expenses from 2011 but not 2012. You can claim expenses from the same year if you finalize in that year, but otherwise, the expenses must be claimed from the previous year. So, when we filed in 2011, we claimed our expenses from 2010 but we couldn't claim any of the 2011 expenses until finalization (or until this year - the same for us).

I don't know if what I've typed makes sense. It's very complicated. I would love to know if we could count the expenses paid in our failed match as an attempt but whether that's possible I don't know. I think it would be difficult to do, if even possible, since you have to have a SSN or adoption ID# for a child to claim it as far as I can tell.

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Copied from the IRS website:

http://www.irs.gov/Individuals/Adoption-Credit-Phone-Forum-Questions-and-Answers

If an adoptive parent pays qualified adoption expenses in 2011 and the adoption is finalized in 2012, are those expenses first allowable on the 2011 income tax return or on the 2012 return?

Answer: The expenses are first allowable on the 2012 income tax return (which will be filed in 2013).

Can I claim the adoption credit expenses paid for an unsuccessful adoption?

Answer: You can claim the adoption credit for qualified adoption expenses paid for the attempted adoption of an eligible child who was a U.S. citizen or resident at the time the adoption effort began. The credit is claimed for the year following the year of payment.

Can qualified adoption expenses for multiple failed attempts be claimed in the same year as a completed final adoption?

Answer: Yes, assuming the timing requirements are met. For example, if you paid qualified adoption expenses in 2010 both for a failed domestic adoption and for a successful domestic adoption that finalized in 2011, you can claim the expenses for both the failed and the successful adoptions for the 2011 year (subject to the dollar limitation). To claim the expenses, complete both Part I and Part II of Form 8839. Refer to the Form 8839 Instructions for additional information.

For a domestic adoption, if qualifying adoption expenses are paid any year before the adoption becomes final, the proper year for claiming the credit is the year following the year of payment. If the qualifying adoption expenses are paid during or after the year the adoption becomes final, the credit is claimed for the year of payment.

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Does anyone know if maternity expenses paid for a failed match are deductible? Or would this be included in the fees that are applied toward the adoption credit after the next finalization? Just wondering since we incurred the maternity expenses in 2012 and won't have a finalization until 2013 at the soonest. I put a call into my CPA but haven't heard back yet - wondering if anyone has any experience with this.

Thanks!

Failed or succesful attempts to adopt follow the same rules. Expenses for a failed adoption attempt in late 2012 (therefore no successful finalization until 2013 or later) would apply to the adoption credit for 2013.

The sticky thing is when you have last year adoption expenses (for example 2012) but no adoption yet when filing 2013 tax return. (Don't worry I'm not talking about you guys - this is not a forecast!) Actually, my husband and I were almost in that situation. It's been a while since I read up on it but my understanding is that you can take the adoption credit on unsuccessful attempts without waiting for the successful attempt. So for example my husband and I started our adoption journey in 2003, we had a match fall apart 2 years before our son collin - we had no name or tax id number for that little girl. If collin had not come along in late 2008 we could have listed our failed match as "child 1" and attached our home study to our tax return. The instructions for Form 8839 list a home study as one of the options for proof to attach to the 8839.

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Let me clarify this explanation and say that the adoption credit limit is for ONE child so failed adoption attempts while you can get credit for those they don't increase the amount of total credit available for "child 1" whoever child 1 ends up being eventually (in my case collin)... So while in the example of my son collin, we had failed adoption costs that perhaps we could take sooner than some of collin's expenses, we were still limited to the $12k or $13k (whatever the limit was that year) of credit.

So if I could dream up a really horrible example... let's say you had expenses related to a failed match that were $13k+ and maxed out the adoption credit, that's fine you can take it but then you get zero left over to take with your successful adoption.

As always talk to your CPA about how these rules apply to you.

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Suzi,

To take it one step further, what would happen if you had used up part or all of your adoption credit on failed attempts hoping to achieve a successful adoption and then decided NOT to adopt afterall (ie: became pregnant or some other reason)? Then would you have to give the credit back, that which you took before an actual placement? (since there was no successful adoption)

Thanks for the great information on this thread.

Karen

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Copied from the IRS website:

http://www.irs.gov/I...ons-and-Answers

If an adoptive parent pays qualified adoption expenses in 2011 and the adoption is finalized in 2012, are those expenses first allowable on the 2011 income tax return or on the 2012 return?

Answer: The expenses are first allowable on the 2012 income tax return (which will be filed in 2013).

Can I claim the adoption credit expenses paid for an unsuccessful adoption?

Answer: You can claim the adoption credit for qualified adoption expenses paid for the attempted adoption of an eligible child who was a U.S. citizen or resident at the time the adoption effort began. The credit is claimed for the year following the year of payment.

Can qualified adoption expenses for multiple failed attempts be claimed in the same year as a completed final adoption?

Answer: Yes, assuming the timing requirements are met. For example, if you paid qualified adoption expenses in 2010 both for a failed domestic adoption and for a successful domestic adoption that finalized in 2011, you can claim the expenses for both the failed and the successful adoptions for the 2011 year (subject to the dollar limitation). To claim the expenses, complete both Part I and Part II of Form 8839. Refer to the Form 8839 Instructions for additional information.

For a domestic adoption, if qualifying adoption expenses are paid any year before the adoption becomes final, the proper year for claiming the credit is the year following the year of payment. If the qualifying adoption expenses are paid during or after the year the adoption becomes final, the credit is claimed for the year of payment.

Thanks Suzi. This makes sense to me. Adoption expenses can be claimed for the credit in the tax year "after" payments were made, unless it's the year of finalization, in which case, all expenses would be allowable towards the credit in the same year. I guess everyone needs to work with their individual tax advisor to determine how it is interpretted.

Karen

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ADOPTION TAX CREDIT NEW (source: The Kiplinger Tax Letter, Vol. 88, No. 1, Jan. 4, 2013)

"The adoption credit can be taken on up to $12,770 of costs, a $120 boost. If the credit is more than a filer's tax liability, the excess is not refundable. The full $12,770 credit is available for a special needs adoption, even if it cost less. The credit starts to dry up for filers with AGIs over $191,530 and ends at $231,530. The exclusion for company-paid adoption aid also increases to $12,770."

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Copied from the IRS website:

http://www.irs.gov/I...ons-and-Answers

If an adoptive parent pays qualified adoption expenses in 2011 and the adoption is finalized in 2012, are those expenses first allowable on the 2011 income tax return or on the 2012 return?

Answer: The expenses are first allowable on the 2012 income tax return (which will be filed in 2013).

Can I claim the adoption credit expenses paid for an unsuccessful adoption?

Answer: You can claim the adoption credit for qualified adoption expenses paid for the attempted adoption of an eligible child who was a U.S. citizen or resident at the time the adoption effort began. The credit is claimed for the year following the year of payment.

Can qualified adoption expenses for multiple failed attempts be claimed in the same year as a completed final adoption?

Answer: Yes, assuming the timing requirements are met. For example, if you paid qualified adoption expenses in 2010 both for a failed domestic adoption and for a successful domestic adoption that finalized in 2011, you can claim the expenses for both the failed and the successful adoptions for the 2011 year (subject to the dollar limitation). To claim the expenses, complete both Part I and Part II of Form 8839. Refer to the Form 8839 Instructions for additional information.

For a domestic adoption, if qualifying adoption expenses are paid any year before the adoption becomes final, the proper year for claiming the credit is the year following the year of payment. If the qualifying adoption expenses are paid during or after the year the adoption becomes final, the credit is claimed for the year of payment.

Thanks Suzi. This makes sense to me. Adoption expenses can be claimed for the credit in the tax year "after" payments were made, unless it's the year of finalization, in which case, all expenses would be allowable towards the credit in the same year. I guess everyone needs to work with their individual tax advisor to determine how it is interpretted.

Karen

The instructions for Form 8839 say you can take the credit even if the adoption never became final (if the failed attempt was a child that is a US citizen) so I would think no you would not have to pay back the credit. (If the child is a foreign child then any adoption credit can only be taken once the adoption is final.)

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Suzi,

Thank you so much for all of this information and helpful examples! I think I may finally understand (most of) the ins and outs of this.

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Finally. Finally, a year later... our 2011 adoption tax credit (along with the other portion of our taxes, which should have been returned ages ago) have been forked over by our friends at the IRS. Just in time for me to file our 2012 taxes, which should be a walk in the park in comparison. The good news is that we have what we need sitting in our account, just waiting to be used for the adoption of our next baby, travel, unpaid time off work, camp/travel, and finalization/travel. So good to have it in our account finally! They put us under quite a microscope, lost our address 4 times and sent to our old house, lost documents numerous times and required them all over again, etc. Funny what happens when you stall the IRS, but they can push every button and mock you for a solid year, no problem! I know this money isn't something we "deserve," but what a relief and a blessing.

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