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Hi all,
I'm having the worst time with the IRS. I have a TA and she just called today. Apparently the IRS is denying all expenses related to anything we spent for our adoption with regard to our son's birthmom: her living expenses, post birth expenses and even her legal fees. We paid all these to vendors or lawyers, not to her directly AND I provided copies of the bank check carbons, or receipts as I had them. Here are the items:
$200.00 - Birthparent post-birth expenses, to be disbursed after TPR (Handwritten receipt from lawyer)
$2800, Birthparent post-birth expenses, to be disbursed after TPR (Handwritten receipt from lawyer AND copy of the bank check)
$1,000.00 Birthparent legal fees (Handwritten receipt from lawyer AND copy of the bank check)
$75.00 sent to birthmom to pay for shipping some items here via Western Union (receipt sent)
$450ish Flight for birthmom, as she wanted to give birth here. (receipt sent)
approx $950, Rent / oil / electricity for birthmom for one month (receipt from landlord and paid bills sent)
In addition, it seems like they may also be having issues with the proof I sent for our homestudy fees (homestudy agency has since gone out of business and all records were shredded... I had our caseworker write up a letter stating what the fees were for a homestudy through their agency, stating we had paid them, and then included the first and last pages of the study to prove the signatures matched. I also sent a copy of the fee structure from an old website of theirs I found online). AND they may be having issue with the proof I sent of having paid OUR legal fees (I sent the case notes that show how the lawyers spent down our retainer and our second payment, that are on letterhead and clearly show where we made payments into the account and when.
Have you all had this level of scrutity? I'm terrified that they are going to deny us outright. We adopted our third child with the assumption that we'd be getting this adoption tax credit and borrowed money from my mother. I am so, so worried we won't see the credit and I'm so confused -- I sent in 28 pages of supporting information the first time, 16 additional the second time, and then 40 to my TA. What the hell do I do now? My understanding is that birthparent expenses are part of every domestic adoption, and I know that the IRS isn't line iteming those who went through agencies (we did ours independently with a lawyer) to take out the part of the agency fee that went to birthparent expenses!
Any advice? I'm at a loss and very sad. :(
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That does not seem right since these same expenses seem to be part of most domestic adoptions and don't seem off the chart in terms of the amounts. Did the TA have any further information? Does the IRS have any code which spells out exactly what they allow and don't allow? I found this on the Resolve website....The IRS defines qualified adoption expensesӔ as reasonable and necessary adoption fees, court costs, attorney fees, and other expenses directly related to, and for the principal purpose of, adopting an eligible child. Thus, adoptive parents may recover costs for initial attorney meetings, agency fees, birth parent living expenses (if allowed under your states law) and travel expenses. It is not from the IRS but it seems that even a large organization like Resolve feels that birthparent expenses can be included.
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Hmmm... that could cause an issue, definately. The IRS does not list expenses incurred by the birth parent and paid for by the adoptive parent in either the "allowed" or "not allowed" part of the tax rules. Here is what I'm looking at from the form 8839 instructions :
I don't quite know what to think about them disallowing those expenses on your return, because you are correct that in some cases the same expenses can be lumped in an agency fee which is allowed to be claimed on a return.
I don't know what to recommend, but I thought seeing the actual IRS statement might help at least somewhat.
Qualified Adoption Expenses
Qualified adoption expenses are reasonable and necessary expenses directly related to, and for the principal purpose of, the legal adoption of an eligible child.
Qualified adoption expenses include:
-Adoption fees,
-Attorney fees,
-Court costs,
-Travel expenses (including meals and lodging) while away from home, and
-Re-adoption expenses relating to the adoption of a foreign child.
Qualified adoption expenses do not include expenses:
-For which you received funds under any state, local, or federal program,
-That violate state or federal law,
-For carrying out a surrogate parenting arrangement,
-For the adoption of your spouse's child,
-Paid or reimbursed by your employer or any other person or organization, or
-Allowed as a credit or deduction under any other provision of federal income tax law.