california adoption credit

You ask as though you think double dipping is a bad thing. Yes, it is getting benefit from two taxing authorities for one expenditure but if the laws at both levels allow it, so what?

(1) I just wanted to be sure that I didn't miss any part of the California credit that says something like -- subtract from your adoption expenses the amount reimbursed by federal adoption credit and your employer. There's a saying: if something is too good to be true, then it probably is.

(2) Second, if there is a loophole or perceived loophole in the law, then one can make plans to close it. For example, I could write to my senator to close this loophole, or run for the legislature myself, or write articles as a journalist to convince people of this overly- generous tax break when the state is broke. Or maybe as an investigative journalist I could uncover scams like these -- people adopt a special needs child, they get IRS and CA tax credits, then give the kid back for adoption.

Be consistent. Eliminate the double dipping for charitable contributions, mortgage interest and medical expenses, too.

Why not eliminate the double taxation as well?

Ira Smilovitz

Those aren't tax credits.

There is both a federal credit for child and dependent care ("day care") and one for California also, many people get both credits (and the California one is refundable, specifically tied to 50% of the federal credit, with a phaseout for AGI).

Adoption credits as far as I know are relatively few and far between. Why not start a crusade against the much more common day-care credit?

Maybe so. However, the these deductions can save you 35% federal,

10.55% state, total 45.55%. However, with the tax credit it's like getting 200% back. Normally a tax break means you pay less but you still pay tax, whereas the adoption credit you actually get a return on investment, which is why is struck out in my mind as bizarre. Also another post said the dependent care credit is double dipping, but the combined credit is still less than 100% of the total amount dependent care expenses paid (35% federal, half of that CA, for total of 52.5%).

I don't recall all the details, but if you adopt a special-needs child and your costs are reimbursed, you *still* get the credit (or something like that). Now that's really double-dipping, even before the state credit kicks in.

Credits are typically one way Congress implements social policy. Perhaps instead of looking at it as an undeserved windfall for the taxpayer, you should look at it as a relatively cheap way to promote more careful child-rearing, ultimately leading to more productive members of society down the road (adopted child grows up with loving parents instead of as a ward of the state).

As a side note, despite the credit being so ripe for exploitation and scams as you claim, how often is it actually used? I know that when I teach basic tax class, we tend to gloss over it for the reason that it's a seldom-used area of tax expertise. But maybe there was a recent uptick in false claims, resulting in the new rule this year which requires you to paper file the return with supporting documentation for the adoption.

Yes, I agree.

It is a rarely used credit. I found an article that provides statistics for the 2010 filing season, on returns received through March/4/2011. Is is strange that I can't find statistics on the adoption credit for the 2009 filing season.

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In addition, the IRS has received returns from

9,859 individuals claiming over $124 million in Adoption Credits, with 6,974 (71 percent) of the claims either having invalid, insufficient, or missing documentation to support the legitimacy of these claims. The IRS did not act on our recommendation to seek authority to disallow claims without proper documentation. As such, each of these claims will be sent to its Examination function.

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