Pending Adoption-Exemption?

[zeros]

Taxpayers are caring for an potential adoptee pending release of parental rights. They received the child on 7/3/07 by an adoption agency. They receive foster care payments which are not taxable. Would they be able to claim this child as an exemption in 07?

[Koss]

Pending Adoption

When was the child born?

Burton M. Koss
koss@usakoss.net

[zeros]

Pending Adoption

Born in November 2005.

[Koss]

Not clear

The child does not appear to be a qualifying child, because even if the adoption had become final during 2007, the child did not live with the taxpayer for more than half the year.

The child may be a qualifying relative. The fact pattern you present indicates that the child has been placed with the taxpayer by an authorized placement agency, and that makes the child an eligible foster child, as this term is defined by IRC 152(f). This means that the child meets the relationship test for a qualifying relative.

You now have to determine whether the other criteria for qualifying relative are met, including the part about "not a qualifying child of any other taxpayer." Which lands you squarely in the middle of IRS Notice 2008-5.

Your client is in the unenviable position of being expected to know whether either of the child's parents are filing a return, and if so, if they are filing a return only for the purpose of claiming a refund of tax withheld.

If the kid was bounced around among other foster homes throughout the first part of 2007, and was not with any one parent or foster parent for that period of time, then they may be able to draw the conclusion that the child is not the qualifying child or qualifying relative of anyone else.

But if the child was actually living with one of the parents, there's a good chance that parent is going to claim the child. Unless they had little or no income, which is where Notice 2008-5 comes into play.

If they had gotten the kid one week earlier, they would have more than half the year, and it would be a qualifying child. But don't tell them that, unless they ask for a technical explanation of the law. They might just walk out, go to another tax pro, and suddenly remember that they got the kid on June 29.

BMK