The Story: According to a report by the Taxpayer Advocate Service, 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.
The Background: As David French, an adoptive father explains, the adoption process is so extraordinarily expensive that it is out of reach for many middle-class families. The adoption tax credit helps offset the costs since under current U.S. tax law, Americans do not have to pay taxes on qualified expenses related to adoption. These expenses include adoption fees, court costs, attorney fees, traveling expenses, and other expenses for which the principal purpose is the legal adoption of an eligible child. French adds,
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.[. . .]
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.