tax credit and special needs determination

Hi. I was in a very similar situation when I adopted my son last year (finalized Dec 2010). We had a subsidy agreement but with $0 filled in the amount as our son was only 10 months at finalization and appears to be perfectly healthy with no special needs. However, his birth mom had admitted to using drugs during her pregnancy so there is always a chance for future problems, so they gave us the medical coverage and the agreement "just in case." When I filed my taxes, I included a copy of the subsidy agreement and a letter in which I explained that he met the state's definition of special needs. I received the full subsidy with no problems. I am happy to say that at 21months, he continues to be healthy and probably above average intelligence (not that I'm biased or anything :arrow: ). Good luck.

If you have a subsidy, even a deferred one, you will qualify for the full ATC. The subsidy is your proof of special needs. You will need to submit the subsidy documents and your adoption decree. Congrats on your adoption![url=http://www.nacac.org/taxcredit/taxcredit2011.html]NACAC | Adoption Tax Credit[/url]

You should be able to receive the tax credit with just the subsidy agreement. Both my children have no special needs at all, but because California considers all foster children as special needs due to "Adverse Parental Background", they each receive a subsidy and I was able to claim the full tax credit on both of them. I just used the subsidy agreement as proof of their special need classification.

OK, I'm confused. How can you get an ATC when the state pays for the adoption NRAE?

If the child is classified as special needs by the State, then you are eligible for the full ATC even if you had no adoption related expenses.

Our accountant researched this thoroughly and said we did not get it for the reason I stated above. My 4 yo is special needs, but the IRS said no. I wonder if it has changed in the last two years since we finalized.

2010 and 2011 adoptions finalize qualify for a full refundable tax credit without adoption expenses. This is basically for family adopting foster kids. Also if you finalized prior to 2010 you may be eligle for a partial credit. You should look into it more.

The definition of a special needs child, and the ability for that child's parents to claim the full adoption tax credit has been the same way for at least the last five, possibly longer but I don't remember for sure. Lots of accountants don't know that, but they REALLY should. If your child meets a small handful of criteria, then you qualify for the entire amount of the federal adoption tax credit regardless of the amount of expenses you paid. The directions for how to handle that are in the instructions for the Form 8839 (The form you fill out about any and all adoption expenses). I coped the following quotes from the IRS web page of instructions for Form 8839: [url=http://www.irs.gov/instructions/i8839/ch02.html]Instructions for Form 8839 (2010)[/url] And the instructions for line 5 include: Line 20 is about employer-reimbursed expenses, so I won't include all that verbiage since it may not apply to you. I hope that helps you. If your 4 year old does qualify as a "special needs" child by this IRS definition, then I encourage you to amend your prior years' returns. And for the OP - check out line C in the first quote from the IRS site. It says "assistance". It does not say "monthly money above $0" or anything like that. Just assistance. Access to medical services is assistance. Respite care is assistance. Subsidized childcare is assistance. Medicaid is assistance. Etc. A copy of your papers showing whatever type of assistance you get is enough. :-)

I believe the same rules regarding special needs applied 2 years ago. I used to work for a very highly regarded accounting firm and they originally told me that I would not be eligible for the credit until I pushed them to research it further and they discovered that they were wrong. Based on what I have read here, many accountants give misinformation in regards to the adoption tax credit. I think they just aren't used to having to deal with it. I would suggest you research it further because it is not too late to file an amended return.

Becki_in_IN - the same rules apply now as what did two years ago, the only difference being that last year & this year we got the ATC as a refund vs just a credit. I adopted my daughter in 2006 and got the full ATC but as a credit- so it had to be carried over each year when we didn't have enough liability to use it. This year, we were able to get a full refund of the remaining balance. It sounds like you should have gotten the full ATC for your son, I'd look into amending your taxes.

Becki_in_IN: If you find out that you were entitled to the credit when you finalized in 2008, then you may need to amend your 2009 and 2010 returns too. Any unused credit in 2008 should have been rolled over to your 2009 return, and any credit still unused after 2009 should have rolled over to your 2010 return and been paid to you in in full as a refund since the credit became refundable in 2010.

Becki in IN- Yes...im sure you qualify for this credit. I know that you dont have to have expenses. I was just confused on the "special needs" part. So we have an adoption subsidy agreement for $11/day plus medicaid. Obviously we are in Indiana so Justin does not actually receive the subsidy....but the agreement alone is what the IRS will use to determine special needs? Is that right? Like Becki in IN, I seem to know more about this than our CPA/tax guy. He also thought we couldnt claim it if we didnt have any expenses. Our attorney told us that was not true. So it sounds like we qualify. Im going for it. How long does the refund take? A year? Thank You