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We finally beat the IRS in our adoption tax credit case
Dear Adopting Families (particularly in Ohio),
Today, after nearly a year and a half since filing our 2011 federal income tax return, we finally got our refund after our long dispute over the adoption tax credit.
At this point we are too exhausted to address every detail in full, but for the benefit of other adopting families, we will summarize the insanity that took place.
Our son was born December 2010 in Ohio. He was placed in our home 3 days after his birth. We finalized the adoption June 2011. We filed our 2011 Form 1040, including Form 8839, by mail February 2012.
Right away we knew our refund would be held pending further examination, as did most families filing Form 8839 these days. Every time we received written correspondence from the IRS Memphis Service Center (MSC), it came with new examination reports, each with new findings and faulty logic and math. It did consistently, though, deny reimbursement of birthmother living expenses without any basis whatsoever. Examiners and supervisors we talked with by phone could not or would not cite documentation that stated birthmother living expenses violated Form 8839 or the tax code in general as a qualified adoption expense. The MSC also clouded the main issues by enclosing calculations and forms that had no bearing on the matter. And somehow this blatant ignorance and/or disregard of the adoption credit tax form and tax law was signed off by Ms. M., a manager.
Then the IRS, before coming to any agreement with us, decided the case was closed in its eyes and issued us a notice of deficiency, forcing us, at our own expense, to file a petition to tax court by late November 2012. We did so. We also secured an attorney, mostly because we had legal coverage available to us as an employment benefit, but also because despite being able to argue the case ourselves with common sense, logic, and a simple grasp of addition and subtraction, we were unsure of our ability to defend ourselves in a tax-court setting. Our attorney assured us this case would not actually go to court, but instead our petition would trigger a review/appeal with the MSC.
During the wait, the MSC decided to agree with our principal arguments, save the issue of birthmother living expenses. It advised us that if we did not agree with its latest findings, we should petition the tax court by early December 2012. Trouble is, the deadline date was 1 week before we received the correspondence and two days after our first tax-court petition deadline. And why was there now an option to refer the case to a field examination office in lieu of tax court but not at the time our notice of deficiency was issued? Frankly, the lunacy no longer surprised us.
After waiting through the winter and spring, the tax court finally decided in our favor. We had calculated the tax credit correctly and were due the refund as we originally filed.
Adopting families in Ohio, no matter what the IRS tells you, birthmother living expenses ARE a qualified adoption expense. Many states, including Ohio, allow payment of living expenses ($3000 in Ohio) by the adopting family to the birth mother as long as they are paid directly to the agency or attorney handing the adoption, not the birth mother herself.
When dealing with the IRS, you will be up against the epitome of ignorance, ineptitude and carelessness. Stay strong in your fight and donít back down.
Mr. and Mrs. P.
Interesting. Were your birthmother expenses paid through the agency or directly to the birthmother?
Also, when was your tax court decision released? There's only one TC case so far this year that I can see and it was decided in the government's favor in April.
Finally, FWIW, it is standard IRS procedure that if a notice of deficiency is issued and the taxpayer files a petition in tax court (as opposed to paying the tax and suing in US district court), the case is automatically referred to the IRS appeals division. If the taxpayer disagrees with the appeals result, then the case is docketed with the court.
Dad to Zane (born 3/28/07), adoption finalized 10/3/07
I don't know if this will help you or not.
I as formally employed with the IRS, and one of my direct jobs was to deal with F8839. However the office you dealt with was not my office.
We the tax examiners (down in the trenches) knew what the system (computers, management etc) was wrong, we complained, letters, meetings, we did computer work arounds, we tried everything we could, to no avail.
We CARED that the taxpayer (you) were getting screwed over. It just didn't matter. We had no voice.
In the very end, I could no longer be apart of a system that as so broken, believe as I do, and still sleep at night. The horror on so many levels that was brought on to honest taxpayers was too much.
After 6 years, I walked away. Yes it was a good paying job, great schedule, and fine benefits. However, my moral compass said my name could no longer be attached to this work. I was done.
I am so glad to hear that you fought back, and you won.
It does give me great pleasure to know this.
Married my "Keeper" 10/2009
We had kiddos from our "Practice Marriages"
BS Bevis 1990
BD Eeyore 1993
BD Brain 1994
AD Pinki 1995
BD Owl 1998
BD Tigger 2000
BD Frog 2003
AD Lula 2004
AS Lil' Professor 2010
First Placement :
08/2010 : The 3 Musketeers; RU
09/2010: Parrot ; Adopted Non Relative
09/2010 : Lil Professor; Adopted by US!
09/2011 : Phoenix , RU
11/15/2011 Call for Match - siblings- Adopt only
11/19/2011 Girls arrive 7 & 16 years old
06/2012 adopted by us!
Respite to many
My day :
Motto : Always room for 1 more
Our agency invoice itemized birthmother living expenses along with the placement fee and other fees. I distinctly remember a MSC examiner telling me that "we have never reimbursed living expenses." Patently false.
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