The IRS Targets Adoptive Families

The author’s older daughter reads a book on the iPad to his younger daughter.

What is the IRS Morality?  To defend Planned Parenthood, while deluging adoptive families with audits.  Here’s the under-reported story.

Earlier this week, in a feeble attempt at humor on Facebook, I posted: “If you haven’t been audited by the IRS during the Obama administration, can you even call yourself a conservative?”  Given the scale of the abuses, I should probably just shorten it and say, “Only RINOs don’t get audited.” My wife and I got audited in 2011, with the IRS examining every inch of our adoption the previous year. The process was painful, but we got through it, and our refund may have been adjusted by a few dollars (the amount of the adjustment was so small, I don’t actually remember). In other words, the audit was a gigantic waste of time — for the IRS and for our family. A Facebook commenter, however, pointed me to a report that made me rethink the experience.

As we get word that the IRS has harassed a number of pro-life groups, including at least one alleged demand that a pro-life group not picket Planned Parenthood, check out this statistic: 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.

This audit wave got almost no media coverage, but what was the experience like for individual families? In a word, grueling. Huge document requests with short turnaround times were followed by lengthy IRS delays in processing, all with no understanding for the unique documentation challenges of international adoption. Here’s how one adoptive family described the experience:

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.

She went on to explain the challenges of documenting expenses (challenges we shared in our own audit, when I ultimately decided it was simply futile trying to document how we spent all the cash we took to Ethiopia). Her post concluded as she wrapped up the audit and waited for the IRS to respond:

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.

Is it the IRS’s job to frustrate and obstruct the intent of Congress by targeting vulnerable families? Once again, here’s the Taxpayer Advocate Service:

With respect to the Adoption Credit, and in particular the credit for adoption of special needs children, the IRS has failed abysmally to take into account that over 45 percent of adopting families are at or below 200 percent federal poverty level, presenting particular communication and functional literacy challenges even as they are desperately in need of the funds which Congress has sought to deliver to them.

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. If the IRS is concerned about fraud, it can audit random samples, not the vast majority of adoptive families claiming the credit.

The IRS is a broken institution. Yet despite its moral and legal corruption, it still wields immense power. As Congress investigates wrongdoing, it’s past time to consider fundamental tax reform. In other words, starve the beast. It has proven it can’t be trusted with power.

This article first appeared here on National Review.

Follow David on Facebook and Twitter, and read more of the French Revolution blog.

  • http://www.facebook.com/siliconjunkie Mark Lewis

    You really need to reword. You were not audited, they reviewed your return and requested documentation.Story is still valid, and I went through the identical hoops. But an audit has very specific meaning that doesn’t apply here. I do feel for you as mine was domestic and very simple, yet I had the exact same problems.

    • http://www.NancyFrench.com/ Nancy French

      Dear Mark, The IRS documentation to us said it was an “audit.” The report David quoted is FROM the IRS and describes that 90% of the returns received a request for additional info. 69% were audited. That is the language from the IRS, not from us. Take a look at the report.

      • SDN

        Nancy, facts are like Kryptonite to Leftists, and English is not the language they speak.

      • MaMcGriz

        Good grief.

        I was afraid you were gonna say that.

        Thank you for bringing attention to this awful practice. The red flags abound.

        It really becomes worse when the administrative costs for all the staff time and taxpayers’ money squandered in this wretchedness are factored in.

        Add to that the amount of money to be spent as this winds its way forward through the hearings and litigation and the waste becomes truly spectacular.

        It shows such wantonness…in so many ways.

  • Arch

    Don’t give IRS a free loan. Figure what you will owe and have your HR adjust your withholding. It’s better if you owe them $100 on April 15th rather than them holding up your refund.

  • Keith_Indy

    We haven’t been audited yet, or been asked for more information. We also had an accountant do our taxes, not sure if that made a difference.

    We went a different way by adopting our son from within our own state. He was special needs because he was 11 at the time we started the process, and turned 13 the day after his adoption was finalized.

  • gyakuzuki

    is there a (proven) statistical correlation between adoptive parents and conservative political leanings?

  • Craig P. Hurst

    Well, now I am not looking forward to doing my taxes next year with the addition of our international adoption we just completed this year.

    • AmazedOne1

      Start putting your paperwork in order now. Then, it will be a breeze.

      • MaMcGriz

        The audit ratio and blame the victim meme coming from the IRS are instant red flags.

        Especially now, don’t you think?

        • AmazedOne1

          I see what you’re saying — especially in light of the Tea Party target. But, I truly don’t know either way if this was the same type of issue or not.

          With the adoptive child credit, it looks like the IRS tried to help people BEFORE they sent in the return by reminding them to be really careful to include all the papers. Since they were getting over $13K of free money from the govt., it seems like they should have heeded the warnings.

          I’d like to know how many of them did send in all the right papers with the return and then still got audited. That would be a very telling figure.

          • George Catman

            I went through this. After 6 months of wrangling, I finally found out that I had to send them a copy of the check showing that I actually paid the adoption agency. So have that ready.

  • Steph

    I don’t know that it is because of the politics of adopting that they audited you. We used the “first time home-buyer tax credit” one year and they audited us a year or two later, so I assumed they do it to a higher percentage of people claiming tax credits than the general public. I could be wrong though, but someone should check.

  • AmazedOne1

    Let me say that an IRS audit would be scary. REALLY scary. And, I’m sorry you had to go through it.

    Just a small quibble: If the people have the money to adopt, which is (according to you) a “process that is so extraordinarily expensive that it is out of reach for many middle-class families,” then they probably have the funds to hold on till they get their credit. They wouldn’t be desperate for the (as you next say) “much-needed tax refunds to the very families that needed them the most.”

    However, I also understand that some families don’t have much money because they stretched their budgets in order to bring home a precious child. So, receiving extra money from the government would be a blessing.

    A point that is more important to the overall question of the audits: It sounds like many of the people who were audited brought this upon themselves because they simply didn’t follow the instructions. They were told that if they wanted a windfall of an extra $13,360 per child from the government, they had to submit the proper proof. That seems reasonable.

    When they didn’t submit the required papers, the IRS had to go back and ask for more paperwork that they had already laid out in the documentation that starts with this helpful warning (my emphasis added):

    Many taxpayers and their tax professionals claiming the newly-expanded adoption credit are slowing down their refund by failing to include required documentation, such as an adoption order or decree, with their return. If you do not attach all the required documentation such as an adoption decree or subsidy agreement to your return or your taxpayer’s return, your refund will be delayed.
    http://www.irs.gov/uac/Adoptive-Parents:-Don%E2%80%99t-Delay-Your-Adoption-Credit-Refund

    The blogger you quoted from Kate’s Wish complains about short turn-around times. Actually, she had much longer than just 30 days because she had all the months before she turned in her original tax return. She chose not to do it then. She also could have done it after she sent in her return (knowing that she hadn’t sent the right papers with it), just in case they asked for it later. She chose not to do it then, either.

    Sure travel in foreign countries (especially third-world countries) is always an interesting challenge. So, your decision not to document the cash in Ethiopia was sensible. Compared to this year’s $13,360 credit, the blogger should have followed your example and shrugged off mention of some of the money spent.

    Finally, the blogger is incorrect when she said that it was “our money” that she was waiting for. She is confusing a “refund” and a “credit.” With a “refund” we get back some or all of the money that we have put into the system. But, with a “credit,” we can receive MORE than we put in. With this adoption credit, she could get up to $13,360 per child above and beyond what she put into the tax system that year. Thus, it was not her own money that she was waiting for. And, if she had sent the paperwork in the first place, she might have received the money in a more timely manner.

    • Aunt Mo

      Actually, I have a friend who is a CPA…had all her paperwork in order…yet she was STILL audited. Had to copy and send everything AGAIN…and they found no errors. Hmmmm….sounds like the IRS could be picking on someone…

      • TheReluctantWidow

        That was our case. We provided everything with our return initially and it was prepared by a CPA. We still got audited and they treated me as though I were a criminal when I spoke to them on the phone.

    • Alpheus

      I have never adopted anyone, but I don’t quite believe that it’s as easy to keep documentation of your expenses as you claim it is. Does the tax code make it clear just what documentation you need to keep, and to provide? If so, is it easy to find? With the tax code so complex, even IRS agents and professional tax preparers cannot know all of it, I somehow doubt it’s as easy to send in all the documentation the IRS claims to need as you make it out to be.

      And all this is completely independent of the question of why we let adoption become such an expensive process in the first place. Why should it cost on the order of tens of thousands of dollars, and be so complex that foreign adoptions become easier and cheaper by comparison (which themselves still cost tens of thousands of dollars), just so you could provide a home for a child who needs a home? We wouldn’t need a stupid tax credit if the adoption process was much simpler!

  • Adele Henderson

    Out of pure fear of being Audited I have hired my own accountant since I became an Ordained Minister. Lucky for me I keep every record and receipt for longer than I probably should. But the IRS frightens me. Sorry for what you went through.

  • Something Brewing

    We need to stop complaining about the IRS and start working to shut it down. Also, where was the money coming from when families received this credit? Is it redistribution of wealth? Should people really be complaining about a delay in getting someone else’s money, or money created out of thin air as part of our immoral banking system.

    • Alpheus

      A lot of times, a tax credit doesn’t give you money. It just means you get taxed less.

      For the record, however, I am somewhat in agreement. One reason the tax code is so complicated, is that it’s been over-used for social engineering that is questionable at best. As a result, any income tax short of a flat tax (and perhaps even that) is a massive invasion of privacy. We should do away with it altogether!

    • http://www.facebook.com/jodie.pessolano Jodie Pessolano

      Yes, people should be complaining that the law, no matter how convoluted you believe it to be, was applied prejudicially to punish the political enemies of this administration. And yes, that is unquestionably the motivation here.

      • Something Brewing

        When the government gives people 13,000 dollars they should check and be sure the people receiving it are really eligible to receive it. I actually think this is a good thing and didn’t see any hard evidence people were targeted. You can’t say, as you did, this is unquestionably the motivation, and this it is. Not all who adopt are conservatives like us. You have to differentiate between this and the IRS targeting groups because they have patriot or tea party in their name. If the government targeted only homosexual couples adopting you would probably rejoice, or if Goerge W Bush did it you would probably try to explain it away or defend it, just like you probably still say invading Iraq was justified and a good idea.

        • Jackie

          This is not a redistribution of wealth, this was OUR money we were being refunded that we had already paid to facilitate an adoption, money we paid to non-profit organizations that the gov’t said we should receive back because the costs are so grossly overinflated and outrageous. The premise being if you are ultimately approved to adopt a child and do so, after going through all the background checks, interviews, health, fitness, etc., then the chances of that child being taught and growing up to be a productive member of this society are enormous. So don’t tell me I’m getting back someone else’s money, that was my money I received back!

  • TheAnvil

    We adopted a special needs child last year. No refund yet. And with this, added concern.

  • Kristi

    We did send in every required document with our 2010 tax return. I made certain of it. Yet, we were asked to provide further information regarding the adoption expenses. I had all the paperwork and sent that to the IRS. We then waited over six months for our return. We finally received it at the end of October 2011.

    My problem with the entire adoption credit process, and maybe it has been addressed since then, the IRS asked for an adoption decree but did NOT ask for an itemized expense list or canceled checks in the initial filing. Why wouldn’t they ask for that? A $13,000+ credit is a lot of money. How ridiculous.

    Some forethought within the IRS would have saved a lot of employee time/salary and expedited our return.

    I wonder how many billions of dollars U.S. taxpayers spend every year to keep the IRS running?

  • smc

    That’s really weird. Maybe I live in a hip area, but the surge in adoptions I see around here are by gay couples — so wouldn’t this mean IRS targets another important very Obama-supportive voting block?

  • Morgan

    I adopted a child in 07 from eastern europe. I used jackson hewitt and filed electronically until obamacare hit and had to file by paper and mailed in my return in april. I was still using Jackson Hewitt. End of September I got my tax credit refund. A few weeks later I got my first audit letter from the IRS. I owed $1000, the IRS indicated. Jackson hewitt told me we’d appeal and they’d get me an advocate. This went on until the next year when my taxes were tripped and the irs collected its $1000 plus fees. All the while I was being furloughed and dealing with economic issues as well as medical issues with my child who had surgery that year and was diagnosed with several disabilities. Adoptive parents face enough hurdles and when we were adjusting to

  • Morganikaine

    I adopted my dd from russia in 07. I was audited in 2011 after the changes in filing from obamacare package. My jackson hewitt taxpayer did something incorrect. I have never been audited b4. I feel disconcerted that I was targeted. I don’t mind paying what I owe. But to have my taxes targeted by auditers bcuz i filed 4 the credit is not right. My dd and I were adjusting 2 our new lives. Didn’t need the hassle of the audit during those special years.

  • TheReluctantWidow

    Our refund took 9 months to receive in 2011. They audited not just our son’s 2010 adoption credit but our daughter’s 2009 credit because we were receiving the remainder of that as well. When I asked why they were questioning the documentation, the lady on the other end snarkily replied “people lie about adopting.” Seriously? We use a CPA to do our taxes. So he lied for us? I provided the documentation TWICE and they still took months to pay. Not only that, but the interest was piddly in comparison to the penalties and interest they charge delinquents. Yes, I am pretty bitter too.


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