Sometimes we must delve into politics in order to protect the interests of the adoption triad. As a group, we’ve successfully managed to attain the attention of congress several times in order to affect change.
I’d like to see us do this again, and I wouldn’t mind getting the media on our side this time, if this is as widespread as the article below implies — and I’m afraid it is widespread, as we’ve heard from so many parents here who’ve been hassled by the IRS.
As we get word that the IRS has harassed a number of pro-life groups, including at least one alleged demand that a pro-life group not picket Planned Parenthood, check out this statistic: In 2012, the IRS requested additional information from 90 percent of returns claiming the adoption tax credit and went on to actually audit 69 percent. More details from the Taxpayer Advocate Service:
- During the 2012 filing season, 90 percent of returns claiming the refundable adoption credit were subject to additional review to determine if an examination was necessary. The most common reasons were income and a lack of documentation.
- Sixty-nine percent of all adoption credit claims during the 2012 filing season were selected for audit.
- Of the completed adoption tax credit audits, over 55 percent ended with no change in the tax owed or refund due in fiscal year 2012. The median refund amount involved in these audits is over $15,000 and the median adjusted gross income (AGI) of the taxpayers involved is about 64,000. The average adoption credit correspondence audit currently takes 126 days, causing a lengthy delay for taxpayers waiting for refunds.
While many returns had missing or incomplete information (more on that in a moment), what was the outcome of this massive audit campaign? Not much:
- Despite Congress’ express intent to target the credit to low and middle income families, the IRS created income-based rules that were responsible for over one-third of all additional reviews in FY2012.
- Of the $668.1 million in adoption credit claims in tax year (TY) 2011 as a result of adoption credit audits, the IRS only disallowed $11 million — or one and one-half percent — in adoption credit claims. 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.
So Congress implemented a tax credit to facilitate adoption – a process that is so extraordinarily expensive that it is out of reach for many middle-class families — and the IRS responded by implementing an audit campaign that delayed much-needed tax refunds to the very families that needed them the most. Oh, and the return on its investment in this harassment? Slightly more than 1 percent.
This audit wave got almost no media coverage, but what was the experience like for individual families? In a word, grueling. Huge document requests with short turnaround times were followed by lengthy IRS delays in processing, all with no understanding for the unique documentation challenges of international adoption. Here’s how one adoptive family described the experience:
It was early June when a letter arrived from IRS explaining that we (and lots of other adoptive parents, as it turns out) were being audited re: our adoption tax credit. The folks at IRS gave us 30 days to gather our receipts, invoices, cancelled checks, etc. to document our expenses and submit said documents to their tax examiner. If we couldn’t comply within the time limit, they would set aside our request for a credit and we would be out of luck, meaning no more of our money would be refunded to us. If we got them the paperwork, then they would review our records and decide how much more of our money they would refund to us. (Am I bitter? Just a tad bit . . .)
The article goes on to explain the complexities of international adoption, and why you don’t always have receipts for every penny spent in a foreign country, in a cash economy. They are using Kazakhstan and Ethiopia as examples, but much of the same can be said of China. The original author also points out the unnecessary added stress this can add to new parents faced with the task of integrating a post-institutionalized child from another culture into their family. Actually, I’ll post the article’s wrap up:
As an adoptive family, it’s sometimes difficult to describe the immense challenges in gathering paperwork, opening your lives to social workers for home studies, then expensive travel to sometimes-corrupt foreign locales to then launch a new life with a child you love immensely but who is also experiencing his or her own culture shock and adjustment. All of this places a great strain on family finances and emotions. To then face an audit on the other side? All so the IRS can collect a whopping 1 percent additional revenue? It’s beyond the pale. If the IRS is concerned about fraud, it can audit random samples, not the vast majority of adoptive families claiming the credit.
The IRS is a broken institution. Yet despite its moral and legal corruption, it still wields immense power. As Congress investigates wrongdoing, it’s past time to consider fundamental tax reform. In other words, starve the beast. It has proven it can’t be trusted with power.
Because I’ve seen so many of you giving each other advice on how to handle the IRS, I know this is, indeed, a problem. However, I didn’t put two and two together until RK pointed me to this article.
I believe it’s time we, as a community, bring this to the attention of our congressional representatives. Congress felt the need to help adoptive families out with a tax credit, and the IRS decided to target vulnerable families and obstruct the intent of Congress.
I urge you all to download and read the Taxpayer Advocate report — right click the following link, save to your hard drive, and open from your hard drive.
If you contact your congressional representatives or media, please point them to this report as well.
To contact your senators and representative: