Pending Adoption/Dependency for 2005

[TTT]

Question: I have a client who adopted a foreign child (Guatemala) and brought the child back to the US on 12-8-2005 under an IR-4 visa, plus immigration has given them a green card so the child is a resident for 10 years. The adoption is pending in the US until the state of Ohio re-adopts the child...I know the adoption credits/expenses will go on next year (2006) but my question is this: dependency...can I claim the child as a dependent for 2005?...

per the taxbook a child placed in a home for legal adoption by an authorized agency does not need to be a member of the household for the entire year...could you read that and let me know if you concur......The question may be whether the IR-4 visa and immigration--Guatemala is considered an "authorized" agency but my client says the adopted them in Guatemala, were given a US residency (green card) and then they have to re-adopt in Ohio to finalize it...in 2006...
the new UDC rulesas did the "child" provide more than 1/2 of his or her support...

so here is why I was thinking of taking the depenency for 2005 even though the child was only in the home for Dec of 2005...one month

no gross income US "resident", not US citizen
No joint return
child did not provide more than 1/2 of their own support
not related yet to t/p yet but pending adoption so the child does not have to be in the home for more than 6 months...

do you concur? thanks for your thoughts....I appreciate it...

[Bees Knees]

I believe the child would qualify. TTB page 3-15 says: “An authorized placement agency is any agency authorized by a state, the District of Columbia, a U.S. possession, a foreign country, or a political subdivision of any of these to place children for adoption.”

I assume that means if Guatemala is authorized to place the child with the taxpayer for adoption, then the child is considered to be the taxpayer’s child. I don’t think the re-adoption in Ohio is relevant. That probably is a requirement for all adoptions initially started in a foreign country.

However, I believe the dependency test for 2005 would fall under the qualifying relative rules, not the qualifying child rules. The reason is the qualifying child rules require the child to live with the taxpayer for more than half of 2005. Under the exception to time lived with the taxpayer test, pending adoption is not listed. The statement: “The child does not have to be a member of the household for the entire year,” was said in the context that in order for the child to qualify as the taxpayer’s own child, he or she has to live with the taxpayer. That does not mean he or she is treated as living with them for the entire year. It simply means the child passes the adopted child test and is treated as being the taxpayer’s own child.

But that doesn’t matter, because under the qualifying relative rules, a child does not have to have lived in the taxpayer’s house for more than half of 2005 to qualify as a dependent. You do have to pass the gross income test (under $3,200) and the support test (over 50% total support). I assume both of these test are met. So in my opinion, the pending adoption for the last few days of the year means the child is a qualifying relative for purposes of the dependency test rules in 2005.

[TTT]

This is what worries me....the support test (over 50% total support). The child was born in Guatemala in July of 2005...the parents adopted them in December of 2005...brought him back...did the taxpayer provide 1/2 the support? Don't know...he was an orphan....

I hear you on this....Under the exception to time lived with the taxpayer test, pending adoption is not listed. The statement: “The child does not have to be a member of the household for the entire year,” was said in the context that in order for the child to qualify as the taxpayer’s own child, he or she has to live with the taxpayer. That does not mean he or she is treated as living with them for the entire year. It simply means the child passes the adopted child test and is treated as being the taxpayer’s own child...

But could you re-read pending adoption in the tax book page 3-15...it says they don't have to be in the household the entire year...maybe I am just not getting it...

I'd like it to be a child for dependency...so that I can use the "child" did not provide more than 1/2 their own support

[Bees Knees]

But could you re-read pending adoption in the tax book page 3-15...it says they don't have to be in the household the entire year...maybe I am just not getting it...

I'd like it to be a child for dependency...so that I can use the "child" did not provide more than 1/2 their own support

No, the statement on page 3-15 of TTB that says "...does not have to be a member of the household for the entire year..." was said in the context of the rule that says "a child placed with a taxpayer for legal adoption....is considered to be the taxpayer's child."

All that means is since there is a pending adoption, and the child was placed their by a legal authority, then the child is treated as if it were the taxpayer's own flesh and blood.

Period. Nothing more.

Now, put that rule in the context of whether the child is a "Qualifying Child", or whether the child is a "Qualifying Relative."

Remember, just because a child is considered to be your own child does not automatically make your child a "Qualifying Child."

I think you have to pass the "Qualifying Relative" rule here to claim a dependency exemption, including the more than 50% support test. Of course, how much money could possibly have been spent on an orphan born in Guatemala in July of 2005 compared to what your client spent?

[Sandytax]

Adoption

Try Publication 968. I use it for all my adoptions in the office. I even give copies to potential parents. It is written fairly easy to read. Just remember that the adoption for the tax year is similar to a baby just born if all other test can be passed. Ask your client if they have filed a W-7A to get an adoption social security until all the red tape is completed.

Happy New Year.

[TTT]

Thanks ALL. I will likely go the relative route...with no child tax deduction...just dependency....