Thursday, November 25, 2010

The Faculty Lounge Talks Adoption Tax Credits

The Faculty Lounge is a law professor website that usually focuses on law school issues, but also talks general law at times.  A new post talks about the different treatment of domestic and international adoption for purposes of the adoption tax credit:
Over-simply stated, a tax credit is available for expenses related to an international adoption only if the adoption becomes final, but the same finality rule does not apply to expenses for a U.S. adoption.

What might be the policy reasons for this tax discrimination? Is it because significant tax revenue is at stake? According to U.S. State Department figures, the number of international adoptions has increased steadily. In 1999, there were 167,369. [gotta be a typo] In 2000, there were 18,477. In 2001, there were 19,237.  If there were a correlation between completed adoptions and failed adoptions, one could make a rough estimate of the number of taxpayers who could have benefitted from an adoption tax credit, but for the fact they could not or did not finalize their international adoption.

Alternately, is the different tax treatment of U.S. and international adoptions just one more example of attempts to influence social policy through the tax laws? Maybe, but I wonder whether tax credits factor significantly into a decision to adopt a U.S. citizen versus a non-U.S. citizen.
 What do you think?  Is the disparate tax treatment justified?  If you go to China to adopt, and while there the adoption falls through -- the child has unexpected issues the family felt it could not handle, or the child has died and the government offers a substitute referral the family isn't prepared to accept -- should the expenses be deductible?  If not, how is this different from a domestic adoption that falls through in the U.S.?


Molly said...

Well, with international adoptions there's the added problem of people who successfully adopt, bring home their child, and then don't finalize the adoption in a US court -- there've been a few high-profile cases of teenagers who've lived here since infacy being deported b/c they got into trouble and they weren't citizens. So some kind of carrot to encourage people to finalize those adoptions doesn't seem like a bad thing.

Anonymous said...

If you adopt a special needs child in the United States, you'll have all kinds of subsidies to help with medical care for that child. If you adopt a special needs child from a foreign country, you are 100% on your own. The adoption tax credit at least helps to offset this difference, although of course it isn't even a drop in the bucket if a child needs hundreds of thousands of dollars in medical care. When our gov't decides that all adopted children qualify for these subsidies, I'll be happy to go without adoption tax credit.