Announcement

**Bees Knees** · 07-17-2007, 05:07 PM

TTB, page 11-7 says the credit (and or exclusion) can be claimed for expenses to adopt a U.S. citizen or resident child even if the adoption never becomes final. The credit cannot be claimed for a foreign child unless the adoption becomes final. Later it explains when a foreign adoption is final. Nothing is said about an exception for death before the adoption is final. It also cites Rev. Proc. 2005-31.

I see nothing in Rev. Proc. 2005-31 that gives an exception, although I just did a quick glance.

Here is the whole procedure if you care to read it:

**taxea** · 07-17-2007, 05:08 PM

adoption credit

the intention was to adopt. the child was a dependent. the death does not change those facts...the adoption fees that were paid are deductible. taxea

**Bees Knees** · 07-17-2007, 05:09 PM

Part III - Administrative, Procedural, and Miscellaneous
26 CFR 601.105: Examination of returns and claims for refund, credit, or
abatement; determination of correct tax liability.
(Also Part 1, §§ 23, 137.)
Rev. Proc. 2005-31
SECTION 1. PURPOSE
This revenue procedure provides safe harbors for determining the finality
of an adoption of a foreign-born child for federal income tax purposes. It finalizes
the revenue procedure proposed in Notice 2003-15, 2003-1 C.B. 540.
Announcement 2005-45, 2005-27 I.R.B., discusses the comments received in
response to Notice 2003-15 and the changes made by this revenue procedure to
the proposed revenue procedure. This revenue procedure also provides
guidance on the treatment of re-adoption expenses.
SECTION 2. BACKGROUND
.01 Section 23 of the Internal Revenue Code allows a credit for qualified
adoption expenses (QAE) paid or incurred by an individual in connection with the
adoption of an eligible child. Section 137 provides an exclusion from an
employee's gross income for QAE paid or incurred by the employer under an
adoption assistance program. See Notice 97-9, 1997-1 C.B. 365, for general
guidance concerning the credit under ' 23 and the exclusion under ' 137.
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.02 QAE are defined in ' 23(d)(1) and Notice 97-9 as reasonable and
necessary adoption fees, court costs, attorney’s fees, traveling expenses
(including amounts expended for meals and lodging) while away from home, and
other expenses directly related to, and for the principal purpose of, the legal
adoption of an eligible child by the taxpayer.
.03 Under § 23(d)(2), an eligible child is an individual who has not attained
age 18 or who is physically or mentally incapable of caring for himself. Section
23(d)(1)(C) provides that a stepchild is not an eligible child.
.04 Section 23(a)(2)(A) provides the general rule that, for QAE paid or
incurred before the taxable year in which the adoption is final, the credit is
allowed in the taxable year that follows the taxable year in which the QAE are
paid or incurred. For QAE paid or incurred during or after the taxable year in
which the adoption is final, the credit is allowed for the taxable year in which the
QAE are paid or incurred. Sec. 23(a)(2)(B). For a foreign adoption, however,
§ 23(e) provides that (1) the credit is allowed only if the adoption becomes final,
and (2) QAE paid or incurred in any taxable year before the taxable year in which
the adoption becomes final are treated as paid or incurred in the taxable year in
which the adoption becomes final. Rules similar to those under § 23(e) apply
under ' 137(e) for purposes of the exclusion for employer-provided adoption
assistance.
.05 The Intercountry Adoption Act of 2000, Pub. L. 106-279, 42 U.S.C. §§
14901-14954 (IAA), will implement the Hague Convention on Protection of
Children and Co-operation in Respect of Intercountry Adoption (the Convention).
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See Senate Treaty Doc. 105-51 (Sept. 20, 2000). When the Convention enters
into force in the United States, the IAA generally will apply to Convention
adoptions (adoptions in which both the sending and the receiving countries are
parties to the Convention).
.06 Section 301 of the IAA (42 U.S.C. § 14931) provides rules for
certification of Convention adoptions. A Convention adoption subject to the IAA
will be final for federal income tax purposes (1) in the taxable year for which the
Secretary of State certifies as final an adoption subject to § 301(b), or (2) in the
year in which the state court enters a final decree of adoption for an adoption
subject to § 301(c).
.07 A discussion of the IAA and the Convention can be found in Hague
Convention on Intercountry Adoption; Intercountry Adoption Act of 2000;
Accreditation of Agencies; Approval of Persons; Preservation of Convention
Records, 68 Fed. Reg. 54064 (September 15, 2003) (proposed rules to be
codified at 22 C.F.R. pts. 96, 98). General information about foreign adoptions
can be accessed through the Department of State web site at
http://www.state.gov and the Department of Homeland Security web site at
http://www.immigration.gov.
SECTION 3. SCOPE
This revenue procedure applies to taxpayers who claim the adoption credit
or exclusion for QAE paid or incurred in connection with the adoption of a
foreign-born child, except adoptions for which the Convention and the IAA
determine finality. This revenue procedure does not apply to the adoption of a
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child who is a citizen or resident of the United States at the time the adoption
process commences.

**Bees Knees** · 07-17-2007, 05:09 PM

SECTION 4. DEFINITIONS
The following definitions apply for purposes of this revenue procedure.
.01 Foreign-born child. An eligible child (within the meaning of § 23(d)(2))
who is not a citizen or resident of the United States at the time the adoption
process commences.
.02 Orphan. A foreign-born child who is under the age of 16 at the time an
immigration petition is filed on the child’s behalf, and
(1) who has suffered the death or disappearance of, or
abandonment or desertion by, or separation from or loss of, both parents, or
(2) for whom the sole or surviving parent is incapable of providing
the proper care and has in writing irrevocably released the foreign-born child for
emigration and adoption.
.03 Foreign-sending country. The country of citizenship of a foreign-born
child, or if the foreign-born child is not permanently residing in the country of
citizenship, the country of the child=s habitual residence before adoption. See 8
C.F.R. ' 204.3(b) (2005).
.04 Competent authority. A court or governmental agency of the foreignsending
country with jurisdiction and authority to make decisions in matters of
child welfare, including adoption (as provided in 8 C.F.R. ' 204.3(b) (2005)).
.05 Home state. The state (including the District of Columbia and
possessions) in which the adopted child and adoptive parents make their habitual
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residence in the United States, or in which the child is adopted.
.06 Full and final adoption. An adoption of an orphan in which the
competent authority of the foreign-sending country enters a decree of adoption
establishing a parent-child relationship under the laws of the foreign-sending
country and both adoptive parents (in adoptions by two parents) or the sole
adoptive parent (in adoptions by one parent) see the orphan before or during the
adoption proceeding.
.07 Simple adoption. An adoption of an orphan in which the competent
authority of the foreign-sending country enters a decree of adoption establishing
a parent-child relationship under the laws of the foreign-sending country, in which
one or both of the adoptive parents do not see the orphan before or during the
adoption proceeding.
.08 Re-adoption. An adoption or other recognition proceeding under
home state law occurring after the entry of a foreign-born child into the United
States under an “immediate relative” IR2, IR3, or IR4 (simple adoption) visa.
.09 IR2 visa. A visa issued to a foreign-born child who is not an orphan,
who was adopted in the foreign-sending country while under the age of 16 years,
and who has been in the legal custody of, and has resided with, the adoptive
parent or parents for at least 2 years.
.10 IR3 visa. A visa issued to an orphan after a full and final adoption of
the orphan has occurred in the foreign-sending country. An IR3 visa is issued if
(1) the competent authority of the foreign-sending country severs the parental
rights of the biological or any previous adoptive parents and establishes a parent6
child relationship between the orphan and the adoptive parent or parents, and (2)
both adoptive parents (in adoptions by two parents) or the sole adoptive parent
(in adoptions by one parent) see the orphan before or during the adoption
proceeding.
.11 IR4 visa. A visa issued to an orphan if (1) a simple adoption occurs in
the foreign-sending country, or (2) the competent authority of the foreign-sending
country grants legal guardianship or custody either to the prospective adoptive
parent or parents or to an individual or agency acting on behalf of the prospective
adoptive parent or parents.
SECTION 5. APPLICATION
.01 Finality of adoption of foreign-born child.
(1) In general. For purposes of the adoption credit and the
exclusion for employer-provided assistance for QAE, the Internal Revenue
Service will treat an adoption of a foreign-born child for which the Convention and
the IAA do not determine finality as final if:
(a) a competent authority of a foreign-sending country has
entered a decree of adoption with respect to the foreign-born child or has
authorized the child to leave the foreign-sending country under a guardianship or
legal custody arrangement; and
(b) the child receives an IR visa from the Department of
State.
(2) Taxable year of finality safe harbors.
(a) Children who receive an IR2, IR3, or IR4 (simple
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adoption) visa. The Service will not challenge a taxpayer’s treatment of the
adoption of a child who receives an IR2, IR3, or IR4 (if the child was adopted in a
simple adoption) visa as final in:
(i) The taxable year in which the competent authority
enters a decree of adoption; or
(ii) The taxable year in which a home state court
enters a decree of re-adoption or the home state otherwise recognizes the
decree of the foreign-sending country, if that taxable year is one of the next two
taxable years after the taxable year in which the competent authority enters the
decree.
(b) Children who receive an IR4 visa (guardianship or legal
custody). The Service will not challenge a taxpayer’s treatment of the adoption
of a child who was subject to a guardianship or legal custody arrangement and
who receives an IR4 visa as final in the taxable year in which a home state court
enters a decree of adoption.
.02 Re-adoption expenses. Otherwise qualified expenses paid or incurred
in connection with a re-adoption satisfy the requirement that expenses be
“reasonable and necessary” for purposes of determining whether the expenses
are QAE.
SECTION 6. EFFECTIVE DATE
This revenue procedure is effective for QAE paid or incurred after June
15, 2005. However, the Service will not challenge the time of finality of adoptions
by taxpayers who apply this revenue procedure or Notice 2003-15 to QAE paid
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or incurred on or before June 15, 2005, in a taxable year for which the period of
limitation under ' 6511 has not expired.
SECTION 7. EFFECT ON OTHER DOCUMENTS
Notice 2003-15 is modified and, as modified, is superseded.
DRAFTING INFORMATION
The principal author of this revenue procedure is Marilyn E. Brookens of
the Office of the Associate Chief Counsel (Income Tax & Accounting). For
further information regarding this revenue procedure, contact Ms. Brookens at
(202) 622-4920 (not a toll-free number).

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