September 15, 2011

The Adoption Tax Credit: Save Everything!

September 15th 2011 Posted to Adoptive Parents,Domestic Adoption

I’ve been getting quite a few frantic calls from adoptive parents this year, even though their adoptions are final. No, it’s not a problem with their adoptions – it’s a problem with their taxes. “I must have done something wrong,” these parents tell me, “the IRS is auditing me! They want copies of everything!” The truth is, it’s nothing they’ve done wrong. It’s simply that for some reason, the IRS is taking a close look at returns claiming the adoption tax credit this year.

As you may know, the 2010 adoption tax credit reimbursed adoptive parents for up to $13,170 in qualifying adoption expenses to adopt an eligible child, and also excluded certain employer-provided adoption benefits from taxable income. If you claimed this credit last year, you probably filled out a form that looks like this one. You probably were advised to submit a copy of your final adoption decree from the court and not much more. If this is your case, it’s quite likely that you later got a letter from the IRS asking for documentation of all your adoption-related expenses.

Many parents were told by their tax preparers that they only had to submit the final adoption decree to the IRS to get the credit, only to get notification later that they had to submit everything –receipts, canceled checks, the works. One 2010 adoptive mom’s advice to adoptive parents? “To keep good records, and not to throw anything away until they’ve gotten the full credit back. It’s taken us 2 years to get the full credit. Last year they just gave us 9K and this year they’re harassing us over 3K. And according to the other families I’ve spoken to, we’re all in the same boat.”

So, there you have it, folks: Don’t panic, but do save everything! Below is a list of expenses to document by getting and saving the receipt and keeping it in a special file for this purpose:

  • Any fees paid to your adoption agency or attorney
  • Any court costs, whether paid directly or to you adoption agency or attorney
  • Any of the birth mother’s permitted expenses (in most states, this includes legal and medical expenses – some states also allow some living expenses to be paid by the adoptive parents).
  • Your home study fee
  • The guardian ad litem’s fee
  • Mileage or travel expenses if you are adopting from somewhere outside your hometown
  • Postage and supplies related to the adoption (your adoption profile, search cards, etc.).

Have you been audited by the IRS regarding your tax credit claim? Tell us about it here or email me your thoughts at evaughan (at) vaughanfirm (dot) com.

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