The IRS Audited Nearly 70% of Adoption Credit Claims. Recent reports indicate that the IRS flagged 90% of all returns that claimed an adoption tax credit, and nearly 70% of those claims were actually audited during 2012. To put this number in perspective, approximately 1% of the general population will have their returns audited in any given year.

These actions caused financial strain for nearly 35,000 families who are selflessly attempting to better the lives of children in need of a loving home.

Congress initiated the Adoption Tax Credit in 1996 to encourage adoption and to help the often high cost of adoption for low-income and middle class families. Some adoptions will cost a family $40,000. Congress believed this tax credit would strengthen American families.

These targeted IRS actions, in auditing well-meaning, adoptive families, has proved to have very little return, however. In fact, FoxNews reports that:

“Of the $668.1 million in adoption credit claims in tax year 2011 as a result of adoption credit audits, the IRS only disallowed $11 million — or one and one-half percent — in adoption credit claims,” the report continued. “However, the IRS has also had to pay out $2.1 million in interest in TY 2011 to taxpayers whose refunds were held past the 45-day period allowed by law.”

In 2010, Congress increased the maximum credit available per child to $13,170, and Congress (at that time) also made this credit fully refundable to families claiming the credit in 2010 and 2011. This means that, even families with no tax liability, could receive that credit as a refund. This large refund is the reason the IRS cites as making more oversight necessary in this area.

The credit has since lost its refundable nature, but a bill has been introduced to restore that aspect of the credit.

The reason this credit is so important to adoptive families is that 1/3 of all adopted children live in families that are at or less than 200% of the poverty level. At this income level, many of these families would not receive much benefit from the credit, unless it were refundable.

If you are considering adopting a child, contact our office today to set up your free consultation. We serve adopting families in the following counties: Davidson, Williamson, Maury, Rutherford, Warren, Cannon, Sumner, Wilson, Montgomery, Robertson, Cheatham.