IRS Releases Guidance on Adoption Credit

10/04/2010

IRS Releases Guidance on Adoption Credit.  The IRS has issued guidance in Rev. Proc. 2010-31, Rev. Proc. 2010-35, and Notice 2010-66, on the adoption credit and adoption assistance exclusion to address changes made by the Patient Protection and Affordable Care Act (the Act). The IRS also released a draft version of Form 8839 that eligible taxpayers will use to claim the newly-expanded adoption credit on 2010 tax returns. The Act raises the maximum adoption credit to $13,170 per child, up from $12,150 in 2009. It also makes the credit refundable, meaning that eligible taxpayers can get it even if they owe no tax for that year. In general, the credit is based on the reasonable and necessary expenses related to a legal adoption, including adoption fees, court costs, attorney’s fees, and travel expenses. Income limits and other special rules apply. In addition to filling out Form 8839, Qualified Adoption Expenses, eligible taxpayers must include one or more adoption-related documents with their 2010 tax returns. The documentation requirements are designed to ensure that taxpayers properly claim the credit. This means that taxpayers claiming the credit will have to file paper tax returns. Normally, it takes six to eight weeks to get a refund claimed on a complete and accurate paper return where all required documents are attached. Rev. Proc. 2010-31 provides safe harbors for determining the finality of foreign adoptions for purposes of the adoption credit under §23, redesignated §36C after 2009, and the exclusion for employer reimbursements under §137. A taxpayer within the scope of this revenue procedure who meets the requirements of a safe harbor described in Section 4 may rely on that safe harbor to determine when a foreign adoption of an eligible child is final. Rev. Proc. 2010-35 modifies and supersedes Sections 3.03 and 3.14 of Rev. Proc. 2009-50, to reflect the statutory amendments by the Patient Protection and Affordable Care Act, to the adoption credit under §36C (formerly § 23) and the exclusion for adoption assistance programs under §137. Notice 2010-66 provides interim guidance on the adoption credit. Section 10909 of the Patient Protection and Affordable Care Act, amended §23 to make the adoption credit refundable, redesignated §23 as §36C, and made certain other changes, effective for taxable years beginning after December 31, 2009.