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Thursday, June 30, 2011

IRS audit of adoption tax credit

Actually, they can keep the t-shirt...check, please!
We were delighted when our tax preparer told us we were getting a hefty tax refund this year. We knew we were owed a carryover of our tax credit from 2010 for our 2009 adoption of Aniyar and Madiyar so we never questioned the amount. We started thinking of home repairs, vacation plans, and bill paying that we could use our refund for. Then we got our refund...just half of what we were expecting...and I couldn't get a real, live person on the phone at IRS so I had no idea why.

It was early June when a letter arrived from IRS explaining that we (and lots of other adoptive parents, as it turns out) were being audited re: our adoption tax credit. The folks at IRS gave us 30 days to gather our receipts, invoices, cancelled checks, etc. to document our expenses and submit said documents to their tax examiner. If we couldn't comply within the time limit, they would set aside our request for a credit and we would be out of luck, meaning no more of our money would be refunded to us. If we got them the paperwork, then they would review our records and decide how much more of our money they would refund to us. (Am I bitter? Just a tad bit...)

Anyway, this might seem to be an easy fix to those unfamiliar with foreign adoption. After all, if you adopt, you work with an agency and that's a business, right? Businesses give receipts and invoices, right? And everyone has cancelled checks, rights? Um, not so much.

See, we adopted from Kazakhstan...on the other side of the freakin' earth...and it's a cash economy...that uses its own currency...and English isn't the language of Kazakhstan. The aforementioned issues presented a teensy problem to securing what IRS needed in a timely manner.

  • Cancelled checks??? All our in-country fees for our foreign adoption had to be paid in cash, nice crisp $100 bills and not a check, credit card slip, or receipt in sight. Of course, this was the largest part of our adoption expense...and did I mention we adopted not one but 2 kids?
  • Oh, yes, we did get some receipts for airline tickets and hotel bills and filing fees while in Kazakhstan. All I had to do was have them translated from Russian to English...and then use a currency converter to calculate the exchange from KZ tenge to US dollars. Several nights with my computer and my Russian speaking son at my side got me the documents I needed.
  • Interestingly enough, even our adoption agencies here in the US never gave us receipts for our home study fees, program fees, post placement reports, etc. At least they were willing to send me receipts after the fact...they were very gracious and did their best, getting the copies to me in less than 2 weeks. (Unfortunately, the agencies are also swamped with calls now since all their other adoptive families are being audited, too and everyone needs receipts.)
  • Cancelled checks for USCIS or KZ embassy filing fees? Forget about it! None of those guys take checks, only money orders or cash. Luckily, I had a stack of those receipts stashed in a file...only took me a week of sorting and organizing the documentation to come up with a total figure.
  • Had tons of little receipts for apostilles, document stamps, etc. Didn't even bother to add them up. Figured my time was better spent focusing on the big ticket items. Kept the suckers, though...you never know what IRS will ask for next.
Anyway, here we are, 30 days later. For the last several days, my dining room table has been covered with documents. I've been reliving my bad old times of adoption dossier preparation but in reverse this time. I finally got it all compiled, copies made, and the huge package of receipts, invoices, translations and conversions sent off to the IRS via Express mail. Now we wait for an answer...to see how much of our money the IRS will give us back. Let's see if they can turn it around in 30 days like I had to. Bitter??? Nooooo, not me.


Karon and John said...

I am right there with you. We adopted a special needs child domesticaly which should be pretty strait forward. First they sent everything to the wrong address. Two weeks ago I spent 3 hours on the phone finding out our case was under examination. He then told me they were sending me part of our refund, but the rest would not be sent until we got them the information they were requesting. I was told it would be mailed out. Still no site of the list of what they want or the check. Frustration is right.

Elisa LaSota said...

Something is VERY WRONG when the likes of Corporate
America can get away with the B--- S--- that con-
tinues to be a huge part of the evening news! And,
this is happening to an average American living a good
life! Give 'em Hell, Dee!

. said...

Same experience here except we're a step ahead of you in the process. What to look forward to? Well, we submitted our packet of reciepts, etc. on May 31st, on June 27th, we got 4 copies of one letter (2 per envelope)....same letter, exact same. The letter was dated June 27th (oh so handdelivered to my mailbox the day it was written?) saying they got our paperwork on June 6th, would review it, and get back to us within 30 days. Oh but if we can't complete our review of your paperwork, we'll let you know in 30 days that we are gonna take longer (by sending you the same letter 4 times perhaps?). Seriously, that's what it says. BUT I have heard that when people finally do get their refunds some HAVE been getting interest paid for the wait. I'll believe it when I see it, but there is hope, huh?! Many blessings!
Shan in CO

Anonymous said...

Well I sent my taxes in back in feb. Got half of it but not the atc then in may I was informed that,they need more information they got that on 5-16 got a letter the famous wait 30 days then heard nothing called tas office and now my,case is closed and money is being released also yes u do get interest its 4%

Kelly and Sne said...

It maddens us too as I've spent the last couple of weeks sifting through receipts. I think it might have been different if they would have specified this in the information about the credit and I would have been more diligent about getting and organizing receipts. And my bank wanted $5 for each copy of a canceled check. And not to mention that Adoptive Families and others have done annual "cost of adoption" surveys so they have a good idea of the total cost of an adoption from Kazakhstan. Do they really need 1000s of families to cough up handwritten receipts to prove that, yes, this really does cost over $50,000. Like it was so much they just can't believe it????

Anonymous said...

Congratulations on having such a beautiful family, and good luck to you.

I also received the "examination process" letter.

I called the IRS today, and they said they are auditing "100%" of people who applied for the adoption tax credit.

I received a letter which needed documentation of my domestic, special needs adoption. I've already sent them this information. They want it again.

To say that the IRS isn't being helpful is an understatement.


Anonymous said...

I'm in Kentucky - we got audited too and like you we've been pouring through bank statements from 2008 & 2009...so pitiful...we adopted SN from China...my daughter is living proof we deserve the tax credit!

Rob and Mary said...

This is the way they are operating. You will next get a letter asking for more documentation. We are nearly 60 days out from our last submission. I expect it will not be sufficient. Then my next step is my Senators and congress person. We have gone above and beyond the initial IRS publication on needed documents.

Anonymous said...

Even if you did the documentation perfect the first time, they will still bounce you from office to office and ask for the exact same documentation. We're still waiting....

KarenD said...

We successfully adopted our don in 2007, but additionally had three other failed adoption attempts so we have a large carryover credit. We have give the IRS EVERYTHING we have, and it still isn't enough. I'm so tired of this that I told my husband to pay the $6500 in penalties and just forget it!! The IRS today told me I need to get them copies of canceled checks from 2003 -- our bank only holds canceled checks for 7 years, and they are $55 per page with each check being two pages!! Insanity reigns at the IRS. Haven't we been through enough?

Anonymous said...

The IRS wants proof that you adopted a child with special needs and is looking for a copy of "state determination of special needs". We adopted from China this year and will be filing for the credit. Does anyone know what the IRS accepts as a "state determination of special needs"


Anonymous said...

Well the madness continues... I just got my letter in March 2012 and am at the start of a very long road from what I have read...

David French said...

Thanks for sharing your account. It now looks like 69% of adoptive families claiming the credit were audited in 2012. I quote from your post in National Review this afternoon: http://www.nationalreview.com/corner/349077/irs-morality-defend-planned-parenthood-deluge-adoptive-families-audits-david-french#comments

I hope everything turned out well for you.

Anonymous said...

My madness begins. In may of 2012 I received a letter from the IRS stating I owed them Over 4000.00 on my adoption that took place in 2006. I too have carryover credits from previous failed adoptions which I didn't even bother with. Yes I am being audited now. They want me to prove my child is special needs and give them receipts totaling 10k or more. When questioned why they only wanted 2009 they stated it was because 2007 and 2008 they gave me a tax credit. 2009 they refunded me money. Seriously! I asked for an extension as it is now 6 years later and I have to find out what storage box my receipts are in. Mind you I did not get a lot of receipts. Faxed them and mailed them. heard nothing back until today. I owe them the money. call if I disagree. I called the number on the letter and they tell me my case was closed on 6/10/2013 of this year, but they don't know the outcome. Guess what. I have to start all over. Tax attorney time.