Was the IRS Targeting Adoptive Parents?

Let’s face it: No one likes the IRS. But lately, the organization has had more reason than ever before for raising ire. There are allegations that they unfairly targeted certain groups for evaluation of their nonexempt status. And now, it appears they were also targeting another group—adoptive parents.

The adoption tax credit is meant to make the adoption process—which often costs tens of thousands of dollars—more affordable to lower-income families. It allowed you to get back more than $13,000 of the costs of the adoption. For my family, it meant we could recover the bulk of the costs of our adoption (minus that pricey airfare to China!). But the adoption tax credit changed in 2009 to make it fully refundable—a boon to low-income families who could now get all of their adoption fees reimbursed at tax time, instead of possibly waiting for years to get the full credit. And so, the IRS decided to flag 90 percent of those returns, requiring the families to produce receipts in very short time frames to substantiate their claim, then holding up the paperwork–and the refunds—for months at a time. The IRS claims that since generous tax refund programs like this are prone to fraud, they reserved the right to delay all of these refunds.

But in the end, the government found that almost every single one of families who claimed the tax credit deserved it—less than 2 percent of adoption tax credit claims were denied for lack of paperwork, and there were no criminal or fraudulent cases sent to the authorities. The government had to pay $2.1 million in interest to people who were left waiting for months and months without their refunds—and that’s not counting the millions in man-hours spent for IRS agents to review all of this perfectly legit paperwork.

But few people talk about the impact of this delay on these families. There’s the added stress of trying to document and find receipts for every adoption expense—stressful when so many adoption fees, especially in international adoption, can be hard to document. And after the mountains of paperwork of putting together the adoption, this just seems to add insult to injury. There’s also the fact that so many of these families, who make on average about $60,000 per year, are counting on getting their refunds in a timely manner—people who often took out second mortgages, held second jobs, fund raised or otherwise begged and borrowed and stretched to cover these daunting expenses. (And odds are, the interest the IRS paid didn’t hold a candle to the interest these people were potentially paying on maxed out credit cards or lines of credit.)

Hopefully, with the new scrutiny the agency is facing in the wake of these scandals, this won’t be a problem for future adoptive parents.

What do you think? Should the IRS have held up the refunds for this long?

Image: Tax form by Creativa/Shutterstock.com

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