David French and his wife were one of the couples audited by the IRS because they adopted a child. You really need to read this. Excerpts:
In 2012, the IRS requested additional information from 90 percent of returns claiming the adoption tax credit and went on to actually audit 69 percent. More details from the Taxpayer Advocate Service:
During the 2012 filing season, 90 percent of returns claiming the refundable adoption credit were subject to additional review to determine if an examination was necessary. The most common reasons were income and a lack of documentation.
■ Sixty-nine percent of all adoption credit claims during the 2012 filing season were selected for audit.
■ Of the completed adoption tax credit audits, over 55 percent ended with no change in the tax owed or refund due in fiscal year 2012. The median refund amount involved in these audits is over $15,000 and the median adjusted gross income (AGI) of the taxpayers involved is about 64,000. The average adoption credit correspondence audit currently takes 126 days, causing a lengthy delay for taxpayers waiting for refunds.
While many returns had missing or incomplete information (more on that in a moment), what was the outcome of this massive audit campaign? Not much:
Despite Congress’ express intent to target the credit to low and middle income families, the IRS created income-based rules that were responsible for over one-third of all additional reviews in FY2012.
■ Of the $668.1 million in adoption credit claims in tax year (TY) 2011 as a result of adoption credit audits, the IRS only disallowed $11 million — or one and one-half percent — in adoption credit claims. However, the IRS has also had to pay out $2.1 million in interest in TY 2011 to taxpayers whose refunds were held past the 45-day period allowed by law.
So Congress implemented a tax credit to facilitate adoption – a process that is so extraordinarily expensive that it is out of reach for many middle-class families — and the IRS responded by implementing an audit campaign that delayed much-needed tax refunds to the very families that needed them the most. Oh, and the return on its investment in this harassment? Slightly more than 1 percent.
As an adoptive family, it’s sometimes difficult to describe the immense challenges in gathering paperwork, opening your lives to social workers for home studies, then expensive travel to sometimes-corrupt foreign locales to then launch a new life with a child you love immensely but who is also experiencing his or her own culture shock and adjustment. All of this places a great strain on family finances and emotions. To then face an audit on the other side? All so the IRS can collect a whopping 1 percent additional revenue? It’s beyond the pale.
To say the least! I heard an interview on NPR yesterday with a writer whose new novel is based on her and her husband’s difficult experiences with the adoption process. I thought with astonishment and admiration about the kind of dedication and stamina, based in love, that these parents must go through. To learn that the government tax authorities harassed so many of them for their good deeds is sick-making.