Q: My wife and I have been attempting to adopt for about two years. I have heard that you can claim the Adoption Tax Credit for a failed adoption. Can you do this under the new, permanent credit? If so, how do you claim it, and when?
A: Yes, you can claim the credit for a failed adoption. Nothing’s changed in that regard.
Documentation doesn’t need to be complicated. If I’m working with a couple who take steps toward an adoption that is not successful, I generally give them a letter saying, “I represent this couple as their attorney. They were working with [birth mother’s name] and they lost [amount of money].”
When to claim is a separate issue. In a failed adoption, of course, there is no finalization. My position is that the equivalent of finalization is when the adoption fails, so you can take the credit in that year. If you follow the IRS instructions to the letter, you claim the year after the expenses were incurred. If you do this, you can adjust your withholding to get immediate use of the money.
IRS instructions also state that, if you take a credit for a failed adoption, and later adopt successfully, you have to offset the credit. But nothing in the statutes or in legislative history supports this. Each adoption or failed adoption involves a different child, so you can take a separate credit for each. Every time my clients have fought the IRS on this matter, they’ve won.
