For Adoptive Parents - Lifetime Adoption

You must file IRS Form 8839 with either IRS Form 1040 or Form 1040A to take the adoption tax credit or exclusion

You must file IRS Form 8839 with either IRS Form 1040 or Form 1040A to take the credit or exclusion. As noted above, if you are married, you must file a joint return to take the adoption credit or exclusion.

You must provide an identifying number for the child on Form 8839. For this, you must use either a social security number if the child has one or if you will be able to obtain one prior to filing your tax return, or an adoption taxpayer identification number (ATIN) if you are adopting a U.S. citizen or resident and cannot obtain a social security number prior to filing your tax return. You must use an individual taxpayer identification number (ITIN) if the child is a resident or nonresident alien and not eligible for a social security number. An ATIN is not available for a foreign adoptee.

The amount of your adoption credit or exclusion is limited to $13,170 for each effort to adopt an eligible child. If you can take both a credit and an exclusion, this dollar limit applies separately to each. The $13,170 amount is the total amount of qualifying expenses you may take into account whether, for example, your adoption takes 1 year or 4 years. That is, the $13,170 credit must be reduced by the amount of qualifying expenses taken into account in previous years for the same adoption effort. For example, assume that in your effort to adopt a child, your qualifying adoption expenses are $3,000. The maximum amount of expenses you can take into account for future years will be reduced by the expenses you took into account. Therefore, the maximum amount of expenses you could take into account for future years with respect to this adoption effort is $7,000.

Assume now that you pay $6,000 of qualifying adoption expenses in an effort to adopt an eligible child. However, the adoption is not successful. You then pay an additional $7,000 of qualifying adoption expenses for the successful adoption of a different eligible child. With respect to the dollar limit on the credit, the IRS views the $13,000 of expenses as paid in one adoption effort. Therefore, because the maximum amount of expenses you can take into account is $10,000, you would not be able to take the ATC for $3,000 of qualifying adoption expenses.

For children with “special needs,” the credit or exclusion will be allowed regardless of whether you have qualifying adoption expenses.

A child qualifies as a special needs child if he or she is (1) otherwise an “eligible child” (as defined above), (2) a U.S. citizen or resident, and (3) a state determines that the child cannot or should not be returned to his or her home and probably would not be adopted unless adoption assistance is provided to the adoptive parents.

You should consult your tax advisor, adoption attorney and relevant state agency regarding adoptions of children with special needs.

As noted above, the IRS will likely review a tax return claiming the ATC or exclusion with the same careful attention it reviews tax returns claiming other tax credits and exclusions. Therefore, it is important that you retain all of your receipts and records showing payments made in connection with adoption expenses incurred. You should also keep copies of your tax returns that you file each year.

For additional information on the ATC and income exclusion under an employer-sponsored adoption assistance program, you should consult your tax advisor or adoption attorney. You may also consult IRS Publication 968 which provides a fairly clear explanation of the ATC and exclusion as understood by the agency that will be reviewing your tax return and enforcing the requirements of these tax provisions. Additional information may also be found on the IRS web site, or by calling the IRS at 1-800-829-1040.

© by John J. Spina, Esq.