Adoption Tax Credit

Posted on July 24, 2009 by Russell W. Hall III

This year seems to be the year of tax credits; this post is made up almost exclusively of William Perez's discussion on the adoption tax credit. 

Adoption Tax Credit:

Tax credit of up to [$12,150 in 2009] for adopting a child

By William Perez, About.com

You qualify for the adoption tax credit if you adopted a child and paid out-of-pocket expenses relating to the adoption. The adoption credit is calculated on Form 8839 Qualified Adoption Expenses (PDF). You may claim an adoption credit of up to $12,150 (for tax year 2009) per eligible child. 

Adoption Tax Credit Amounts

2009: $12,150
2008: $11,650
2007: $11,390
2006: $10,960

Adoption Tax Credit Phase-out Ranges

2009: $182,180 - $222,180
2008: $174,730 - $214,730
2007: $170,820 - $210,820
2006: $164,410 - $204,410

The credit is reduced based your modified adjusted gross income. The IRS provides a worksheet for figuring your modified adjusted gross income for the adoption credit in the Instructions for Line 8 of Form 8839. Any income excluded from tax using the Foreign Earned Income Exclusion must be added back for the purposes of determining the phase-out range for the adoption credit.

Adoption Tax Credit Eligibility Requirements

To be eligible for the adoption credit, you must:

  • Adopt an eligible child, and
  • Pay qualified adoption expenses out of your own pocket.

Eligible Children include:

  • any child age 17 or younger, or
  • a child of any age who is a US citizen or resident alien and who is physically or mentally incapable of caring for himself or herself.

Qualified Adoption Expenses are calculated by:

  • Adding up all the expenses related to the adoption,
  • Subtracting any amounts reimbursed or paid for by your employer, government agency, or other organization.

Adoption expenses include any and all costs directly relating to your adoption and that are reasonable and necessary for your adoption. Expenses include adoption fees, legal fees, court costs, and travel expenses.

Taxpayers who adopt a special needs child can claim the full amount of the adoption credit without regard to the actual expenses paid in the year the adoption becomes final.

Eligible expenses must be "directly related" to the adoption of an eligible child. This may include adoption fees, legal fees, and court costs. Expenses for a failed adoption might qualify for the credit if followed by a successful adoption, but the two adoption efforts would be considered as one adoption and subject to the dollar limit per eligible child. The editors of JK Lasser's Your Income Tax advise:

"Do not include expenses paid or reimbursed by your employer or any other person or organization. You may not claim a credit for the costs of a surrogate parenting arrangement or for adopting your spouse's child." (page 469)

When to Claim the Adoption Credit

What year you can claim the adoption credit depends on when the adoption was finalized and whether the adopted child is a US citizen, resident alien, or foreign national.

If the child is a US citizen or resident alien, then you take the adoption credit in the following order:

  • for expenses paid before the adoption is final, you take the adoption credit in the year after your expenses were paid,
  • for expenses paid in the same year that the adoption is final, you take the adoption credit in the same year, and
  • for expenses paid in the year after the adoption is final, you take the adoption credit in the year the expenses were paid.

For example, you adopted a child in 2007, but you paid adoption expenses in 2006, 2007, and 2008. Your 2006 expenses are taken on your 2007 tax return (they must be delayed by one year because the adoption was not final). Your 2007 expenses are taken on your 2007 tax return (because they occurred in the same year as the adoption became final). You take your 2008 expenses on your 2008 tax return. In this example, your 2007 adoption expenses include both your 2006 and your 2007 expenses.

If the child is a foreign national, then you take the adoption credit only in the year when the adoption becomes final. Any expenses paid in the year after the adoption is finalized, you can take a credit for those expenses in the year that you paid them.

If your adopted child does not yet have a Social Security Number, you must apply for an Adoption Tax ID Number (ATIN) in order for you to begin claiming your adopted child as a dependent. The IRS provides comprehensive information on the Adoption Taxpayer Identification Number.

Dollar Limitations for the Adoption Credit

The maximum dollar amount you can claim for the adoption tax credit is limited by actual expenses you paid, by the phase out range for income, and by the interaction of the adoption credit with the foreign tax credit and the alternative minimum tax.  

Carrying Forward the Adoption Credit

Any adoption credit in excess of your tax liability can be carried forward to the next tax year. Excess adoption credits can be carried-forward for five years and is used up on a first-in, first-out basis. The IRS provides a Credit Carryforward Worksheet in the Instructions for Form 8839.

Adoption Tax Credit Resources

 

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The Give and Take of a Consent and Relinquishment

Posted on July 6, 2009 by Russell W. Hall III

"The legal rules on the timing of consent are ultimately a compromise between the interest in protecting biological mothers from making hasty or ill-informed decisions at a time of great physical and emotional stress, and the interest in expediting the adoption for newborns."

Joan Heifetz Hollinger

 

South Carolina does not have a waiting period before a consent and relinquishment (hereafter "consent") becomes effective; the consent is effective immediately and cannot be withdrawn without an order from the court.

Under South Carolina Law, the biological parent wishing to withdraw her consent  must show that the withdrawal is in the best interest of the child and that the consent was not given voluntarily or was obtained under duress or through coercion. This post will focus on the voluntariness of the consent.

In McCann v. Doe, the South Carolina Supreme Court examines a withdrawal of a mother's consent. After the Court recites the facts, it analyzes the voluntariness of the consent and concludes the consent was not given voluntarily.

The Court gives the definition of duress as "'a condition of mind produced by improper external pressure or influence that practically destroys the free agency of a party and causes him to do an act or form a contract not of his own volition. '"  It than proceeds to put emphasis on  "emotional stressors" as it determines whether the consent was entered into voluntarily.

The dissenting opinion with which I agree states:

The majority concludes that the evidence showed McCann's "emotional stressors and suffering caused impaired functioning," which in turn rendered her relinquishment involuntary. However, an action is involuntary when it is performed under duress, force, or coercion, and the crux of this case really is whether McCann acted while under duress...

In my opinion, there is no compelling evidence that McCann's "emotional stressors" were anything but internal in nature. Therefore, although I would agree with the family court's conclusion that McCann was in an emotional state, the family court erred in finding her consent was given involuntarily. Circumstances such as temporary depression or emotional distress simply are not sufficient, in and of themselves, to invalidate a consent to adoption.

Moreover, to suggest that because others offered to support McCann regarding her adoption decision, this encouragement somehow acted to coerce McCann into signing the relinquishment is a sad commentary, indeed. Support for a parent's choice to place a baby for adoption is something that should be promoted, although clearly the decision should never be forced upon a parent...

Of most importance to the instant case is the relinquishment form which was entitled "CONSENT TO ADOPTION." As previously mentioned, and as conceded by the majority, this form complied with the statutory requirements...The purpose of these statutes is "to ensure that birth parents freely and voluntarily consent to relinquish there particular child, and do not do so under conditions of duress.

The South Carolina legislators have put several safeguards in place to ensure that a birth parent is not under duress when she consents to the adoption and relinquishes her parental rights. One of the safeguards is the form and substance of the document the birth parent signs. Another safeguard is the requirement of having the consent and relinquishment signed in the presence of two witnesses. If the consent and relinquishment is taken within this state, one of the witnesses is required to be a family court judge, an attorney who does not represent the adoptive parents, or a person certified by the Department of Social Service to take a consent and relinquishment . If the consent and relinquishment is taken outside of this state then an attorney licensed in the state or jurisdiction within which the consent and relinquishment is signed is required to be one of the witnesses.

In this case, the Court seemed to be bending the facts to its will rather than rendering an opinion based on the facts when it focused on the inner turmoil of the birth mother rather than any external coercion that may have occurred. The Court acknowledged that the consent and relinquishment was proper in form and substance; the facts discussed in the opinion indicate that the attorney taking the consent explained the legal ramification of signing the consent  and the birth mother acknowledged she understood the legal ramification of signing the consent. Yet under the guise of the "totality of the circumstance" the Court rendered an opinion contrary to these facts and based on the Court's expanded definition of duress.

This opinion has the potential to make the adoption process less certain and more costly. It seems that a birth mother now only needs to show that several "emotional stressors" overwhelmed her and made her feel like she had no other choice but to release her baby for adoption; in these cases, the lower courts will be apt to find that the consent was entered into involuntarily because the South Carolina Supreme Court expanded the definition of duress to include these internal pressures caused by "emotional stressors."
 

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