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The IRS Audited Our Adoption Expenses TWICE


“This feels like the movie Groundhog Day,” I told our CPA when we were notified by the IRS that our family’s adoption tax expenses were being audited for a second time. And there was not anything new that the IRS wanted to look at; just the same audit of the same expenses. All for a second time.

In 2009, my wife and I adopted our daughter Rachel from India, and immediately petitioned the local California court, which then officially declared my wife and me to be Rachel’s adoptive parents.  We gave the local Social Security office all of our paperwork, but it delayed giving our daughter a social security number. A few months later, we filed our 2009 returns anyway, and the IRS audited our adoption expenses. After much shuffling of papers, the IRS notified us that our adoption tax credit would not be allowed for 2009, but could be used for 2010. The IRS even suggested a specific dollar amount.

When we filed our 2010 returns, we claimed the exact amount for the adoption tax credit that the IRS had suggested. The IRS audited our adoption expenses anyway!

This time I re-sent to the IRS not only all of our adoption expenses – the exact same expenses sent in the previous audit – but I added a copy of the IRS letter from the previous audit. The IRS accepted our adoption expenses and allowed the tax credit. No changes were made to our 2010 tax returns.

This saga was all in the back of my mind when I heard that the IRS was harassing various conservative groups that were applying for non-profit status. There were also reports of IRS audits expanding beyond the group itself, auditing the personal and business returns of the person filing for tax-exempt status on behalf of the conservative group. In one case, an application for non-profit status by the group “True The Vote,” resulted in not only hundreds of questions from the IRS, but an over two-year wait on the application. The IRS then audited the personal and business returns of the head of True The Vote, and ATF, OSHA and a state version of the EPA all piled on and inspected the family’s business for good measure.

Our daughter Rachel after we brought her home from India. (Photo: Tom Thurlow)

My ears really perked up when I heard that a non-profit application by a pro-life group in Iowa was delayed by IRS demands that the group pledge not to protest outside Planned Parenthood clinics. The group was also asked to explain how their prayer meetings were scientifically or medically educational.  IRS harassment of other pro-life groups has also been documented.

Adoptive families have also been targeted. A recent IRS Taxpayer Advocate Report revealed that 90% of all families claiming the adoption tax credit experienced an IRS audit of some sort, so our family is definitely not alone. I was not able to find out how many adoptive families experienced two successive audits, as was the case with our family.

To be fair, because a tax credit, as opposed to a tax deduction, results in an immediate transfer of money from the federal government to the taxpayer, it would make sense that the IRS would more closely scrutinize a taxpayer filing for a tax credit. But in the case of adoptive parents, a very small amount of the credit in prior years has been disallowed (only 1.5% in 2011, for example).  Definitely a waste of time for both the IRS and the taxpayer.

On the other hand, it could be that standard tax enforcement was not the real reason for all these adoptive tax credit audits. Of all the adoptive parents I have met, most of them appear to have pro-life views. And that would make sense: part of the rally cry against abortion is for a pregnant woman to bring the baby to term, give birth to the baby and give the baby to a family eager to adopt. The more people like us adopt, the more credible that argument becomes, and the fewer children are aborted and adopted instead.

And those are the real losers in this part of the IRS scandal: the children. While the link to abortions is more theoretical, the link to adoptions is real and tangible. Fewer families will adopt now that the word is getting around that an adoption will likely trigger an IRS audit.

I have personally encouraged countless families to adopt a child like we did, whether the adoption is domestic or international. “There are millions of amazing children in need of a loving family,” I tell them.  I also advise them of the legal hoops and inches of paperwork that our family had to wade through, and the expenses involved.

The feedback is usually positive, until the family asks me about taxes. “There is a tax credit, so you will get back much of your adoption expenses. But keep track of all of your expenses, because you may be audited. Maybe even twice, like we were.”

“Twice?!”  After a pause, it usually goes downhill from there.

Thanks to the harassment the IRS has given adoptive parents, fewer parents are willing to go through with an adoption. Why would anyone open themselves up to an IRS audit? Shame on whomever is behind this extra, pointless auditing of adoptive families!

As for myself, I am still waiting for a third audit of our adoption tax credit. Our CPA is skeptical, but you never know. I didn’t think we would have a second audit, but that happened. Bill Murray’s character in Groundhog Day relived the same day more than twice, you know.

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