Adoption
amberfernandez
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Update: Adoption Tax Credit 2010 and 2011
amberfernandez
member
in Adoption
Since most of you probably don't receive the Journal of Accountancy (JOA), I thought I'd post an article regarding the adoption tax credit from my daily JOA email. The extension of the adoption tax credit was part of the ObamaCare bill based earlier this year:
Adoption Tax Credit Guidance Released
SEPTEMBER 29, 2010
The IRS issued interim guidance Wednesday on the child adoption credit and income exclusion for employer reimbursements of adoption expenses, as expanded by the Patient Protection and Affordable Care Act (PL 111-148). For tax years beginning in 2010 and 2011, the act made the credit for qualified adoption expenses (QAEs) refundable rather than subject to the prior-year carryover for up to five years of credit amounts that exceeded an income phaseout. For both the credit and exclusion, it raised the maximum aggregate allowable amount per child in all tax years to $13,170, starting with 2010 tax years. The IRS outlined the latest guidance in a news release (IR 2010-100). In addition, the IRS released a draft revised Form 8839, Qualified Adoption Expenses, reflecting the law changes. For a fuller discussion of the pre-Patient Protection Act credit and exclusion, see ?Tax Treatment of Adoption Expenses,? JofA, April 2010, page 44.
Carryforwards From Previous Tax Years
In Notice 2010-66, the Service clarified how carryover amounts from pre-2010 tax years may be claimed in 2010. A credit amount claimed in a 2009-or-earlier tax year and carried forward to a 2010 tax year is allowable as a refundable tax credit and is not subject to the income phaseout. Any additional credit amount claimed in 2010, however, is subject to the phaseout.
Substantiation Rules
The notice also instituted substantiation requirements for 2010 and following tax years for the credit or exclusion that differ according to whether the adoption is finalized in the United States or in a foreign country and, if the latter, whether the country is a party to the Hague Convention on Protection of Children and Co-operation in Respect of Intercountry Adoption (Hague Convention). For a domestic or foreign adoption that has been finalized in the United States, taxpayers must attach with their returns an adoption order or decree. For foreign adoptions finalized in a Hague Convention party country, taxpayers must attach a Hague Adoption Certificate, IH-3 visa or a foreign adoption decree translated into English. For countries not a party to the Hague Convention, substantiation may consist of a foreign adoption decree translated into English or an IR-2 or IR-3 visa.
For domestic adoptions not yet final, taxpayers may claim credit amounts in the tax year following that in which qualified adoption expenses were incurred. For such credit claims, taxpayers must attach any of six documents or other substantiating information specified in the notice. For adoptions of special-needs children?for which taxpayers may be eligible for the full credit amount regardless of the amount of QAEs?in addition to the above documentation of finalization, taxpayers must also attach a state determination of special needs. Taxpayers may redact ?sensitive personal information? from an adoption order or special-needs assessment, but the Service reserves the right to require a nonredacted copy if deemed necessary to substantiate the claim. Safe Harbor for Finalized Foreign Adoptions In Revenue Procedure 2010-31, effective Sept. 29, 2010, the IRS provided a safe harbor for determining whether a foreign adoption has been finalized for purposes of claiming the adoption credit or exclusion. For adoptions within the scope of the revenue procedure and finalized in a Hague Convention party country, the Service will not challenge taxpayers? treatment of an adoption as finalized in the tax year in which the country issues a final decree of adoption or the U.S. secretary of State issues a certificate under the Intercountry Adoption Act of 2000 (IAA). For adoptions from foreign countries subject to the IAA but finalized in the U.S., the Service will accept as the finalization date that in which a state court enters a final adoption decree. Adoptions from non-Hague Convention party countries remain subject to rules of Revenue Procedure 2005-31. Modification of Rev. Proc. 2009-50 Revenue Procedure 2010-35 modifies Revenue Procedure 2009-50 to reflect the increases in the maximum credit amount and the phaseout amounts for the adoption credit and the maximum excludible amount and the phaseout amounts for payments received from an adoption-assistance program.
For domestic adoptions not yet final, taxpayers may claim credit amounts in the tax year following that in which qualified adoption expenses were incurred. For such credit claims, taxpayers must attach any of six documents or other substantiating information specified in the notice. For adoptions of special-needs children?for which taxpayers may be eligible for the full credit amount regardless of the amount of QAEs?in addition to the above documentation of finalization, taxpayers must also attach a state determination of special needs. Taxpayers may redact ?sensitive personal information? from an adoption order or special-needs assessment, but the Service reserves the right to require a nonredacted copy if deemed necessary to substantiate the claim. Safe Harbor for Finalized Foreign Adoptions In Revenue Procedure 2010-31, effective Sept. 29, 2010, the IRS provided a safe harbor for determining whether a foreign adoption has been finalized for purposes of claiming the adoption credit or exclusion. For adoptions within the scope of the revenue procedure and finalized in a Hague Convention party country, the Service will not challenge taxpayers? treatment of an adoption as finalized in the tax year in which the country issues a final decree of adoption or the U.S. secretary of State issues a certificate under the Intercountry Adoption Act of 2000 (IAA). For adoptions from foreign countries subject to the IAA but finalized in the U.S., the Service will accept as the finalization date that in which a state court enters a final adoption decree. Adoptions from non-Hague Convention party countries remain subject to rules of Revenue Procedure 2005-31. Modification of Rev. Proc. 2009-50 Revenue Procedure 2010-35 modifies Revenue Procedure 2009-50 to reflect the increases in the maximum credit amount and the phaseout amounts for the adoption credit and the maximum excludible amount and the phaseout amounts for payments received from an adoption-assistance program.
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Re: Update: Adoption Tax Credit 2010 and 2011
For domestic adoptions not yet final, taxpayers may claim credit amounts in the tax year following that in which qualified adoption expenses were incurred. For such credit claims, taxpayers must attach any of six documents or other substantiating information specified in the notice.
I am horrible at tax stuff. Does the above part mean that we can claim fees etc. that we already paid even if the adoption is not yet final? Meaning even if we don't have a placement yet or do you take that to mean after placement but before finalization? If everything goes thru our placement will be in December and I'm wondering if we could claim what paid so far...
I take it to mean that if it's not final in the year (one) that you've incurred the expenses, that you can claim them in year two.
5 REs + 3 surgical hysteroscopies for septum/lap + 3 failed IUIs
IVF w/ICSI/AH & acu = BFP!, unexplained spontaneous m/c @ 8w2d (our little girl),
FET w/acu = BFP!, B/G twins!, lost MP @19w, dx w/funneling cervix @20w,
twins nearly lost to IC @21w, saved by rescue cerclage, 17P & 16w of bedrest
Our twins born @36w4d via CS when A came foot first
Thankful for every day
Thanks Amber! Great information to pass on to the hubs.
And I have to ask, Who made that awesome stocing cap for your daughter! I love it and smile every time I see that picture of her wearing it!
I bought the hat on etsy. I don't know anyone that could make that by hand
As far as the credit carryforwards from previous years for Fredalina, according to the article, it looks like any credits from prior years can now be claimed fully in 2010 as a refundable credit. Subject to income phaseout requirements. As long as the adoption was either a) finalized 2010 or prior, or b) The adoption expenses were paid in years 2009 or prior.