paid for foster children then adopted in 2012

[Bucky]

Client was in the process of adopting 2 grandchildren. Mother in jail for abusing one and father out of picture. Client has both children since Feb 2012. A state agency is paying clients as foster parents $1000 a month for each child until adoption goes through in November 2012. Can the taxpayer claim the children as dependents. The one test I am questioning is the support test. In all reality they most likely are paying over half their support but does the agency money really count as theirs? I have searched but can't seem to nail it down.

Thanks

Bucky

[mactoolsix]

From Pub 17

Foster care payments and expenses.
Payments you receive for the support of a foster child from a child placement agency are considered support provided by the agency. Similarly, payments you receive for the support of a foster child from a state or county are considered support provided by the state or county.

If you are not in the trade or business of providing foster care and your unreimbursed out-of-pocket expenses in caring for a foster child were mainly to benefit an organization qualified to receive deductible charitable contributions, the expenses are deductible as charitable contributions but are not considered support you provided. For more information about the deduction for charitable contributions, see chapter 24. If your unreimbursed expenses are not deductible as charitable contributions, they may qualify as support you provided.


Thus, since the State Agency is not qualified to receive deductible charitable contributions, they can not take a charity deduction; then if the child did not provide more than 50% of their required support, the foster children can be claimed as their dependents. So, I see your question - Is the agency's support considered support provided by the child?

Mike

[mactoolsix]

More information

See example 2

http://www.irs.gov/pub/irs-pdf/p17.pdf

Example 2.
You provided $3,000 toward your 10-year-old foster child's support for the
year. The state government provided $4,000, which is considered support provided by the
state, not by the child.
Your foster child did not provide more than half of her own support for the year.

Mike