A Baby Step Adoption

Tips for Claiming the Adoption Tax Credit for a Failed Adoption

       By now, most of you know about the permanent adoption tax credit for each successful adoption attempt and for each adopted child.  The full credit is now $12,970.  The credit phases out for taxpayers with an adjusted gross income over $234,580.  You can carry the credit forward for up to five years.
       There is still confusion about failed adoption attempts.  Yes, each failed/disrupted attempts QUALIFIES for the credit.  Each client will need specific receipts that show that the adoption expenses came out of his/her account - not someone else's.  You will need back up documentation from your agency or attorney.
    

Mark T. McDermott, a D.C. adoption attorney raises some interesting points about the claiming of a tax credit for failed adoptions.  He writes..

      "When to claim is a separate issue.  In a failed adoption, of course, there is no finalization.  My position is that the equivalent of finalization is when the adoption fails, so you can take the credit in that year.  If you follow the IRS instructions to the letter, you claim the year after the expenses were incurred.  If you do this, you can adjust your withholding to get immediate use of the money. 
        IRS instructions also state that, if you take a credit for a failed adoption, and later adopt successfully, you have to offset the credit.  But nothing in the statutes or in legislative history supports this.  Each adoption or failed adoption involves a different child, so you can take a separate credit for each.  Every time my clients have fought the IRS on this matter, they've won."