[acjmn4ever]

I know this has been asked a thousand times, but I still don't get it! Our son came home on an IR4 visa on Dec 23, 2005, we have not done the readoption yet and we live in Ohio. I have read the IRS web site and what ever I could find anywhere!! I still don't understand.

Can we claim the adoption tax credit this year?

And what does it do!?! We went on a popular tax site to estimate our refund. Wether we claimed the adoption tax credit or not, it didn't change what our refund was at all. What is the point of the tax credit?

I sure hope some one can clear this up fro me!! In english, I do niot speak IRSlish!! Thank you MoMo

[lotterino]

I you have not had it finalized in the States, then no you can't take the credit this year. You have to wait until the readoption is complete. We came home IR-4 last year and just completed the readoption this October so we can take it this year.

In order to get that much money refunded, you have to have at least that much tax owed, at least that is my understanding. We do not make nearly enough money to have to pay $10k in taxes, and we get other credits and deductions so that we usually get all of our taxes back anyway. So we will most likely never get to take the full adoption credit.

[sb123]

It is my understand from talking to the IRS and also reading the material on their web site that for tax purposes you can take the tax credit in the year in which the foreign country finalized the adoption.

For citizenship purposes, you still need to readopt and get the CoC, but for tax purposes, you should be able to take the credit for 2005.

We came home on an IR-4 visa in the summer of 2005, and did not do the readoption until Jan 2006. We are taking the tax credit for 2005.

Maybe someone else can chime in to verify this...

sb123

[bb3009]

If you come home on an IR-4 Visa, you have to re-adopt before you can claim the tax credit. If you come home on the IR-3 Visa, the adoption is final in the eyes of the federal government (IRS) and you would be able to claim the tax credit.
We brought our daughter home on the IR-4 and must readopt.

[lotterino]

bb3009, it the opposite actually. The IR-3 is the one that does not the readoption.

[sb123]

Here's the reference to the IRS information on when you can take the tax credit.

http://www.irs.gov/irb/2005-26_IRB/ar14.html

I've attached just a small part of the verbage below:

.01 Finality of adoption of foreign-born child.

(1) In general. For purposes of the adoption credit and the exclusion for employer-provided assistance for QAE, the Internal Revenue Service will treat an adoption of a foreign-born child for which the Convention and the IAA do not determine finality as final if:

(a) a competent authority of a foreign-sending country has entered a decree of adoption with respect to the foreign-born child or has authorized the child to leave the foreign-sending country under a guardianship or legal custody arrangement; and

(b) the child receives an IR visa from the Department of State.

(2) Taxable year of finality safe harbors.

(a) Children who receive an IR2, IR3, or IR4 (simple adoption) visa. The Service will not challenge a taxpayer’s treatment of the adoption of a child who receives an IR2, IR3, or IR4 (if the child was adopted in a simple adoption) visa as final in:

(i) The taxable year in which the competent authority enters a decree of adoption; or

(ii) The taxable year in which a home state court enters a decree of re-adoption or the home state otherwise recognizes the decree of the foreign-sending country, if that taxable year is one of the next two taxable years after the taxable year in which the competent authority enters the decree.

(b) Children who receive an IR4 visa (guardianship or legal custody). The Service will not challenge a taxpayer’s treatment of the adoption of a child who was subject to a guardianship or legal custody arrangement and who receives an IR4 visa as final in the taxable year in which a home state court enters a decree of adoption.

[bb3009]

Thanks for the correction Lotterino...I'll edit my post so nobody gets confused.

[Pudding]

I agree with Lotterino. It is my understanding that if you came home on the R4 visa than you will need to readopt in your county in order to claim the tax credit. The tax credit can be taken over several years. ( Maximum five, I think). I am wondering if you figured your forms incorrectly. Remember that each year the amount of the credit until it is used up is equal to your tax liability. That is a little difficult to explain but it is what you will pay in taxes for that calendar year. For instance when you figure your taxes and you go to the tax tables in the back of the instructions and get the number of the amount of tax that is your tax liability. It is not what you may have to send in because you were short or what they may owe you because you were over. It is difficult to explain. I find it hard to believe that you do not even fall in to those tax tables. I am sure that you do and that is your tax liability. That should be the amount of your credit for the year barring that you do not have some kind of really unique tax situation.

Beth

[bhouston]

We came home on a IR3 Visa in Dec 2003...we were able to take the tax credit for 2004 without doing a readoption...The IR3 helped but there is also state laws that are different. Our state does not require readoption and recognizes the adoption when it is complete in Guatemala.

The tax credit can be confusing....An accountant with *adoption tax credit* knowledge is very helpful! Beth

[tookie12]

I am hoping this is legible....

[msdice]

From IRS Publication 968

When the adoption becomes final depends on the type of immediate relative (IR) visa under which the child enters the United States.

• IR-3 visa. The adoption of a child who enters the United States on an IR-3 visa is treated as final in the year the competent authority enters a decree of adoption. The competent authority is the court or other governmental agency of the foreign country that has jurisdiction and authority to make decisions in matters of child welfare, including adoption.

• Other IR visas. The adoption of a child who enters the United States on an IR visa other than an IR-3 visa is treated as final in the year in which a court of the state in which the child and parents reside enters a decree of adoption, re-adoption, or otherwise recognizes the adoption decree of the foreign country.

So if your son or daughter didn't come home on an IR-3, then when you can start taking the credit depends on your state laws. Here is a link to some state specific information: http://naic.acf.hhs.gov/general/lega...ernational.pdf

[lotterino]

Just to add a little more to this:

Ok, thank you for that link sb123. I read through that and I also looked up the form and instructions for the adoption credit. It can all be really confusing, because it seems like their wording contradicts themselves at times.

I think the key word here is "final." What is considered "final" in one state is different than what another state requires. For us in MN, we are required to readopt in order for the adoption to be final. The federal govn't requires a finalization for children who came home on an IR-4. Some states do a recognition and and some do readoption, and maybe there's more possibilities than that.

The instructions on the credit form clearly say "If the adoption did not become final by the end of 2005, you cannot take the adoption credit for that child in 2005. If the adoption becomes final in a later year, you may be able to take a credit for the expenses in that year." And then in the link provided above, it also clearly distinguishes between those adoptions that are considered "full and final" (IR-3) and those that are considered "simple adoptions" (IR-4).

(a) Children who receive an IR2, IR3, or IR4 (simple adoption) visa. The Service will not challenge a taxpayer’s treatment of the adoption of a child who receives an IR2, IR3, or IR4 (if the child was adopted in a simple adoption) visa as final in:

(i) The taxable year in which the competent authority enters a decree of adoption; or

(ii) The taxable year in which a home state court enters a decree of re-adoption or the home state otherwise recognizes the decree of the foreign-sending country, if that taxable year is one of the next two taxable years after the taxable year in which the competent authority enters the decree.

(b) Children who receive an IR4 visa (guardianship or legal custody). The Service will not challenge a taxpayer’s treatment of the adoption of a child who was subject to a guardianship or legal custody arrangement and who receives an IR4 visa as final in the taxable year in which a home state court enters a decree of adoption

[sb123]

lotterino,

I agree, the wording on the document is confusing.

Here's is my understanding. There are 2 points under item #2 - a and b. You can take the tax credit in the year in which the competent authority (i.e. Guatemala) entered a final decree, or you can take the credit when the you did the readoption. Either way won't be challenged by the IRS.

#2a (part i) says the adoption will be treated as final when the competent authority (i.e. Guatemala) enters a decree of adoption.

Of course, this is just for tax purposes. Those with an IR-4 via still have to readopt to get a CoC.

We are taking the credit this year.

sb123

[mollysmom]

I've had my sweet Molly home now since June of 2004 and completed her readoption in December 2004. I took the tax credit for tax year 2004, and here is a brief look at how it worked.

I paid in approximately $5,000 to Federal taxes. With my exemptions for having a child, house interest, etc., etc., they then applied a portion of the allotted adoption credit (they only used $2,200 of the $10,190 allowed). I ended up getting back all my Federal taxes paid in plus some. I still have approximately $8,000 of adoption credit that I can use in the next 4 years. Does that make sense?

I would highly recommend having your taxes done by an accountant for the first year, at least, that you are taking the credit. That can get you on the right track. Once you see how they did it, you can probably do your own through some other program on the computer from that time forward.

Angie

[lotterino]

Please everyone be careful with this adoption credit. This is not directed at you in particular, sb. There have been many adoptive parents audited in recent years in connection with this credit. Please ask a tax professional with experience in this credit to be sure. You may guess and take the credit and be just fine, but on the other hand it could save a lot of future headache if you consult a professional and be sure.