“Adoption Tax Credits for Year 2010”

(Adoption Quarterly 2011 Spring Edition)

We had the privilege of speaking with Ms. Marilyn Brookens of the Office of Associate Chief Counsel (Income Tax & Accounting). Ms. Brookens is the principal author of “Notice 2010-66” issued by the IRS which provides specific guidelines on computing  and substantiating claims for the adoption credit. Notice 2010-66 is accessible online at <>

Q: Compared to prior years, the adoption tax credit for 2010 is now refundable. What does that mean?

A: It means adoptive parents may be able to claim it even if they owe no tax, for qualified adoption expenses that became allowable in 2010 and for adoptions finalized in 2010. Previously, the adoption credit was nonrefundable, meaning that it only could be used to reduce one’s tax liability, but credit amounts in excess of tax liability could be carried forward for up to 5 subsequent years.

Q: What support documents are required?

A: To claim the refundable adoption credit, Form 8839 must be completed, attached to the income tax return, and mailed to the IRS.

Q: What is Form 8839?

A: Form 8839 “Qualified Adoption Expenses” helps calculate the amount of the adoption credit and any employer-provided adoption benefits that can be excluded from the claimant’s income. Both the credit and the exclusion for expenses may be claimed for adopting an eligible child.

It is important to carefully complete Form 8839 and review the companion form Instructions for Form 8839.

Both forms are viewable on the IRS website at <>  and <>

Q: Are certified documents required?

A: No. Photocopies of the Adoption Order and other supporting documents are sufficient.

Q: Aside from the Adoption Order, what other support documents are required?

A: To expedite the processing of the credit, it is advisable, although not required, to send in receipts or copies of actual adoption expenses. Refer to IRS Form 8839. Receipts and supporting documents should be submitted by mail only.

Q: What should Adoptive Parents know when submitting documents to the IRS to claim the adoption credit?

A: It is important that adoptive parents remember to put their Social Security Number as well as the child’s SSN or ATIN on all supporting documents to avoid any delays in the processing of the claim.

Q: What is the turnaround time for processing of the adoption credit?

A: Due to fraud concerns, 80% of claims for  adoption credits are being looked at carefully. Most refunds come in two parts — a partial refund is issued as soon as possible and another for the balance closer to the completion of the review, which could be approximately 8 to 12 weeks from the time of receipt of additional supporting documents requested.

Q: What are Qualified Adoption Expenses?

A: These include adoption fees, attorney fees, court costs, travel expenses (including meals & lodging) while away from home, and re-adoption expenses relating to the adoption of a foreign child. Not included are expenses for which you received funds (under any state, local or federal program), that violate state or federal law, for carrying out a surrogate parenting agreement, for adoption of your spouse’s child (stepparent adoption), paid or reimbursed by your employer or any other person or organization, or allowed as a tax credit or deduction under any other provision of federal tax law.

Q: Can the claim be filed electronically?

A: To claim the adoption credit, parents must file “paper” returns. A completed copy of Form 8839 and support documents must be attached to the income tax return and mailed to the IRS.

Q: Can adoptive parents claim the credit for a failed or unsuccessful adoption?

A: Page 7, Line 5 of Instructions for Form 8839 reads: “Unsuccessful Adoption. If you paid qualified adoption expenses in an attempt to adopt a child and the attempt was unsuccessful, treat those expenses in the same manner as expenses you paid for adoptions not final by the end of the year. See Domestic adoptions that have not been final under “Documentation Requirements” on Page 4 of the Instructions for Form 8839.

Q: Can the credit be claimed for an adoption that has not finalized in 2010?

A: Yes. Refer to Page 4 of the Instructions for Form 8839 for a list of support documents required in domestic adoptions that have not been finalized in 2010 or earlier.

Q: Does the credit apply in the adoption of children with “special needs”?

A: Yes, if the adoption has finalized. Required is a copy of the order showing the date of finalization and the state determination that the child is “special needs.” Pages 3, 4 & 6 of the Instructions for Form 8839 provide detailed information on “special needs” adoptions.

Q: How about foreign adoptions and re-adoptions? When can the credit be claimed?

A: The credit can be claimed based on date of the finalization of the foreign adoption or the re-adoption. Again, refer to Page 4 of the Instructions for Form 8839 for the list of support documents required.

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