Dissolved Adoption - Dependency Question

[JohnH]

My first time handling something like this - we filed an extension just to check out the answer. After 3 years of solid effort, parents of a now 15-year-old had to dissolve the adoption in 2011. The child is back in the foster-care system now.

The question is whether they can claim the child as a dependent for 2011. I'm thinking they can claim the dependency exemption if the child lived in their home more than 6 months and if they paid over half the support. Haven't been able to find anything to support or refute this.

Does anyone have any suggestions, or perhaps you've run across this sad situation with a client. Any thoughts or experience would be appreciated.

[KathMorgan]

Foster child?

So if the adoption was dissolved then was the child considered a foster child by the state? And if so, did they get paid as foster parents? I'm assuming since you say the adoption was dissolved and not that it fell through that at some point he was actually legally adopted?
Since someones status for the year is what it was on the last day of the tax year I would think they might be able to claim the boy under the dependency rules but he may not necessarily be a qualifying child for child tax credit and EIC. Not enough info to make a call, but those are some good questions to start the search with.

Kathy

[JohnH]

Thank you for your thoughts. Yes, the child was legally adopted in 2008 and lived with them until 2011, when the adoption was dissolved. (I didn't even know an adoption could be "dissolved" until this situation came up.)

The child has their last name and they were entitled to the child tax credit in 2008, 2009, & 2010. This is part of my dilemma, because I'm unsure of the Child Tax Credit in the year the adoption is dissolved. (At least there isn't an EIC clouding the issue further).

IRS says an adopted child is "always" treated as the taxpayer's own child, but I think that applies to the period after the adoption takes place. I'm having trouble making the connection when the adoption is dissolved.

The child was never a foster child - it was a straight-up adoption when it occurred back in 2008. But now I;m wondering if the 2011 year might more closely resemble a foster-child situation due to the facts & circumstances.

[oceanlovin'ea]

date

you haven't mentioned a date yet. I think we have to know how long he was in the home as a part of the family.

Linda, EA

[JohnH]

As it turns out, the child entered a "residential care program" on May 28, 2011. There was still some uncertainty about the next step (including the possibility that the child might return to the home) until late in the year when the decision was finally made to dissolve the adoption. So the parents were thinking the "temporary absence" provisions might apply.

I'm thinking just the opposite. We might be able to apply the "temporary absence" rules to justify the 6-month provisions if the child had returned to the home, but since that didn't happen and they began the process to dissolve the adoption, it's out the window.

This experience has been is a study in how things change when we press for answers in ambiguous situations. As it turns out, the adoption hasn't yet been formally dissolved. The process To dissolve began back in 2011, but it hasn't actually been approved by the courts yet. So legally, we are talking about a situation were this individual is still the child of the taxpayers for legal purposes even as this point. Sometimes we just need to keep pressing for answers, although in this case I don't think anything will surface to justify claiming the child as a dependent.

[Gary2]

As it turns out, the child entered a "residential care program" on May 28, 2011. There was still some uncertainty about the next step (including the possibility that the child might return to the home) until late in the year when the decision was finally made to dissolve the adoption. So the parents were thinking the "temporary absence" provisions might apply.

I'm thinking just the opposite. We might be able to apply the "temporary absence" rules to justify the 6-month provisions if the child had returned to the home, but since that didn't happen and they began the process to dissolve the adoption, it's out the window.

Since the dissolution isn't final, wouldn't the relationship test still be met as of Dec. 31 (just like the distinction between filing for divorce and having it finalized)?

Given that, then one must ask whether the decision that the child won't be returning home changes the absence to a permanent one as of the date of the decision, or retroactively for the entire absence? If the former, then it's not out the window yet. And if the latter, one can still ask whether taxpayer provided more than 50% of the support.

[oceanlovin'ea]

I think this is the way I would think about the situation. He is legally their child. He was placed in "residential care program" at the end of May. This might be similar to a child or dependent being at a rehab facility or a mental institution for a period of time. Child is still the responsibility and dependent of the parents. I would think the fact that no legal steps were taken before the end of the year would lead me to claim the child.

For 2012 I would think that whatever is going to happen will take place before the end of the year. I don't think they would just stay in limbo that long. So 2012 would be a different situation.

Linda, EA