By Amy Feldman
NEW YORK, April 24 Julie and Brett Redden are in
a hurry for the paperwork to go through for the 6-year-old girl
they are planning to adopt from China.
It's not just that they are impatient to start their lives
with her as she joins an 11-year-old sister adopted from China
two months ago. The Reddens are also playing a game of "beat the
clock" so they can take advantage of a generous federal adoption
They have already missed out on the refundable 2011 credit,
which allowed tax savings of as much as $13,360 per child. In
2012, the credit is $12,650 and not refundable -- meaning if
their total tax bill is less than the amount of the credit, they
will not get additional money back from the Internal Revenue
But the Redden's real worry is that the adoption will not be
completed by year's end. And unless Congress acts, that credit
will expire on Dec. 31, 2012.
"We are not rich. We are very middle-income, and we have
scraped and saved and done everything humanly possible to bring
these girls home," said Julie Redden, a 31-year-old teacher in
Redden said she expects adoption costs for both girls to top
$50,000, and there will be ongoing medical expenses because both
have special needs -- the older child is legally blind, while
the younger one has cerebral palsy.
"The tax credit will be enormously helpful to pay for
medical bills," Julie says.
The rules shift regularly on the adoption tax credit, making
planning difficult, especially when combined with the
uncertainties of adoption itself, which can typically cost
$25,000 or more and take months to years to complete.
"The adoption tax credit has never been a permanent part of
the tax code, so every year, or few years, you have to deal with
what's going to happen it," Chuck Johnson, president of the
National Council for Adoption, said.
This year, the credit is not refundable but families that
cannot use the entire credit in 2012 can carry the unused credit
forward for up to five years, using it to offset their income
taxes through 2017.
Next year, without an extension, all that will remain of the
adoption tax credit will be a much smaller $6,000 credit for
domestic adoption for children classified as having "special
needs," a determination made at the state level.
If that sounds confusing -- it is.
Last week, in an early legislative effort to deal with the
adoption credit's changeability, Rep. Bruce Braley, an Iowa
Democrat, introduced a bill that would make a $13,360 refundable
adoption tax credit permanent.
Mark McDermott, a Washington, D.C., adoption attorney who
serves as legislative director of the American Academy of
Adoption Attorneys, believes there will be a credit in 2013, but
that it will be enacted as part of a larger tax and finance
"I don't think any stand-alone bill will pass," McDermott
said. "That's the way things happen on the Hill."
Not surprisingly, there has been confusion over the rules
and processing delays.
"It's quite a rich benefit," said Kathy Pickering, executive
director of the Tax Institute at H&R Block. "We've had a
number of conversations with the folks at the IRS because there
is still a lot of confusion around the rules. Some people have
not been claiming that credit, or not been claiming the full
To claim the credit, file Form 8839 along with supporting
documentation. The paperwork varies, depending on whether you
are adopting domestically or internationally and whether you are
adopting a special-needs child. Parents who should have
qualified for a 2011 credit but missed it can file an amended
return to maximize their savings.
For a regular adoption, whether domestic or foreign, you can
claim the credit up to the amount of your expenses (including
adoption fees, attorneys fees, court costs, travel expenses,
etc). While for a U.S. special-needs child you may qualify for
the full amount of the credit even if you paid few or no
In 2010, nearly 100,000 taxpayers claimed the credit for a
total $1.2 billion.
Expect the IRS to take its time examining your return.
Roughly 68 percent of those who claimed the credit in 2010 were
subject to what the IRS calls a "correspondence audit," a
request for more information, according to a U.S. Government
Accountability Office (GAO) study. Only 17 percent of them were
assessed additional tax, and in no cases were the adoption
credits claimed fraudulently.
"IRS used a disproportionate share of its audit resources on
the adoption credit," the GAO report said.
When Kelly and Jeff Elliott claimed the tax credit for
adopting their now 2-year-old daughter Kaylee from Ethiopia in
2010, the process dragged out for months.
"They wanted to see piece of paperwork after piece of
paperwork. It got kind of ridiculous," Kelly recalled, noting
that they did ultimately receive a check for the full credit.
The Elliotts, who live in Klamath Falls, Oregon, are in the
process of adopting three Ethiopian siblings. Kelly said that
with all the costs of adoption, they hope to get the full credit
With a big family and a middle-class income -- Jeff is a
munitions supervisor at the nearby Air Force training base,
while Kelly works a few hours a week as a Head Start consultant
-- they would like to buy a car that would fit their whole
"The credit would be a godsend this year," Kelly said.