Many taxpayers have encountered frustrating delays in receiving adoption tax credits claimed on their 2010 tax returns, as evidenced by the many comments from readers chronicling their efforts to respond to the IRS requests for additional information. Data revealed by the Treasury Inspector General for Tax Administration (TIGTA) provides some insight into what's going on behind the scenes at the Internal Revenue Service.
The IRS has received $897 million worth of adoption tax credits were claimed on year 2010 tax returns as of April 28th, 2011. Over half of the adoption credit tax return had missing or insufficient supporting documentation. The IRS is routing such tax returns to auditors, who request additional documentation and review documentation to make sure the tax credit being claimed is genuine. However, the IRS has no specific time frame for completing its review of tax returns.
This data was made public when TIGTA chief J. Russell George testified before the oversight subcommittee of the House Ways and Means Committee on May 25, 2011. Here are two relevant excerpts from his testimony:
"As of April 28, 2011, the IRS has received 72,656 individual claims for more than $897 million in Adoption Credits. Of these, 42,399 (58 percent) either had no required documentation or the documentation was invalid or insufficient. According to IRS procedures, each of these claims will be sent to the Examination function for further review."
...
"[T]he IRS estimates that an individual would receive notification that documentation is needed to support eligibility for claiming the Adoption Credit within three to four weeks after his or her tax return is received in the Examination function. The individual then has 30 days to respond to the IRS's request for required documentation. Once the IRS receives the information, the IRS does not have a specific time goal for closing the case subsequent to receipt of the information."
TIGTA suggests that this longer, more time-intensive audit process could have been avoided had the IRS asked Congress to provide the IRS with "math error authority" which would have resulted in the IRS being able to immediately reject the adoption credit amount. "[T]he IRS does not have the authority to deny the Adoption Credit if the documentation is not provided. Without this math error authority, the IRS cannot deny the credit during processing of the tax return, but must instead deny the credit post-processing through the examination process, which is a much more costly, resource-intensive, and burdensome process." TIGTA recommended that the IRS ask for such authority, and suggests that such a process would have been less burdensome and more streamlined for taxpayers.
Full text of the report: Improper Payments in the Administration of Refundable Tax Credits (pages 8 and 9).
Thank you for this! My wife and I are waiting ourselves (ironic, as I work with tax professionals!).
And even though we sent in EXACTLY the paperwork they requested, we were still audited. So, somewhere/somehow I think that these people “auditing” the adoption tax credit may not know what this paperwork even is, let alone try to decipher it.
Dana, a very perceptive remark you wrote. Indeed, I don’t think the IRS knew exactly what they were looking for (even when they received it in the mail), and TIGTA is picking this up this on this “insufficient documentation” as a sign of potential fraud, when really the IRS is just trying to cope implementing a late change in the law. But the sheer volume of adoption credits (each with its own set of supporting documents) is probably adding to the problem too.
Yes Dana, I had the same thought while reading it. (Thank you William for posting the information). It is a bit irksome that our documentation has been termed “insufficient” and in need of review even though we sent the correct paperwork the first time. Obviously, there was not a plan in place and the response to this credit was under-estimated. In addition, as you say, the IRS workers most likely had no clue what they were looking at. But I find it interesting, still, that some credits sailed through while others remain bottlenecked.
I am an Enrolled Agent preparing hundreds of tax returns every year, and my own personal return for the adoption credit was also “audited” for insufficient documentation even though ALL documentaiton was sent with original return, and TWO more times after that before I onvoked assistance from the taxpayer advocate office to get this resolved. The IRS agents I worked with had NO CLUE what paperwork they needed or what they received actually was – especially as this was for a special needs child, so the rules are different. This has been the craziest waste of money I have seen the IRS try to facilitate yet! I believe they are blaming incompetence on fraud, the asy scapegoat….
Interesting timing of the Inspector General to rear the fraud card. It certainly give plausible cover to the train wreck. What he fails to mention is that many families, certainly mine, initially filed all of the necessary paper work. After we filed we were asked two additional times by the IRS to supply the exact same information, because they lost the documentation and that it had been separated from the original return. The OIG seems to infer that because the information was insufficient (because they lost the documentation) that the returns might be fraudulent. We personally received two written notices acknowledging the specific amount of the refund and when to expect them. When we asked about the two notices, the IRS representative simply refused to acknowledge they sent the letters. Of course we have seen no refunds. I personally believe that we are caught up in the politics of the day. I’m sure the IRS detests sending out these large refunds.
It would be interesting to see, when this audit is complete, exactly how many of these cases were actually fraudulent, probably very few if any. I can’t imagine randomly trying to claim the adoption tax credit if it was not owed. Clearly a person would have to be prepared to prove the adoption.
I sent in all the correct paper, dotted my i’s, crossed my t’s and still I was audited. The only thing I could do was to send back in the same paperwork.
We are in the same boat. Sent more than the requested documents at the beginning, went up for “review”, had to re-send documents plus receipts and are still waiting. Unbelievable….
We send and we resend, to Kansas City then Fresno then Memphis. We call and no one calls back (despite promises to the contrary, and IRS policy on referrals), and the few letters we get are outdated when they arrive. We include everything possible to substantiate the adoption (foreign visas, american passports, adoption decrees and translations), and break out spending items by receipt, why it qualifies, and payment type (cash/check/card). What is so sad here is that the adoption community is overwhelmingy law abiding and supportive of good government. Each parent has undergone criminal checks (federal, state, local), along with homestudies by social workers. We are the type of people who would normally support the IRS. But all this drivel makes them ever more appear like the bungling, and even lying, foreign governments we dealt with on our adoptions. It did not need to be this way.
Commenting on my own post, which maybe is bad manners, but I wanted to give you a flavor of the unrest this is causing. Here’s a post from Urban Servant (if the URL doesn’t come across, just google that plus IRS), a family that has adopted many kids, and kept some receipts, before some got lost in a move, and maybe are better parents than they are accountants. For what it’s worth, we don’t know them, and aren’t affiliated with their church or anything, but followed their posts after searching for information on tax credit refund delays. They seem like inner city Amish, and have quite a few posts on the topic: http://urbanservant.blogspot.com/2011/06/even-worse-than-my-worst-case.html
My guess is that these people have always been careful to obey laws, fearing the legal and (in their case) even spiritual consequences. But now they, and it seems some of their friends, feel that they’re getting accused of tax fraud, and that accusation of wrongdoing may cut them deeper than it does many of the rest of us. If IRS management had simply admitted that they weren’t prepared to administer this credit, that would have gone a long way, a very long way, towards retaining the faith of these people in their federal government. This family can get through a delayed or reduced refund, it’s the lying from the IRS that is causing the more lasting damage. Our society needs people like this to believe in their government, and to play by its rules, and above all to pass those values onto their very many kids. I don’t know if the IRS realizes the societal cost when we alienate families like this, when the former supporters of our federal systems begin to relate them to the corrupt governments they adopted from.
Thanks for sharing that link, Christian. Indeed, this seems to be a horribly complicated administrative nightmare for adoptive parents to find themselves in. I’d definitely recommend for tax credit filers to have any notices from the IRS reviewed by a licensed tax professional (CPA, enrolled agent or attorney) and have their cases routed through the National Taxpayer Advocate’s office so the advocate can track and follow up on adoption credit issues. Remember, you also have appeals rights, and that would also be a viable pathway for disputing penalties.
I think the IRS had no idea how much money this was going to mean. They should have never promised it they way they did, and kept the credit as it was. Don’t get me wrong, extra money will be turned down by no one but a little research into the whole thing might have been useful.
Typical Government auditor gloss-over without looking into the real problem – IRS. Gives the impression that half of the submittals were fraudalent or incomplete. I suspect that 99 % were complete upon submission before the IRS rejections for additional support. Just a way to delay.
Fraud? Come on. I invite any IRS official to come to my house and see ample evidence of my four-year-old, complete with photos of our adoption finalization. I’ll go on any record saying that I filed early (February) with a professionally prepared return, mailed in everything, got the same runaround: please resubmit, we have “lost” your documentation. I resubmitted immediately, called repeatedly, keep getting “please wait” letters. I am interested in where the IRS has lost my child’s personal medical data, since it verifies special needs status, and I am also keenly interested in why the IRS could not have informed me that I’d be waiting for months to see the CREDIT CARRYOVER from last year’s credit– processed with no problems.
It’s sort of nice to know that I’m not all alone in this boat. We filed in mid-April and have only received one letter so far, but it had nothing to do with a review or audit, it just stated that lines 1 through 6 of the Adoption Credit tax form were illegible. Which doesn’t make sense, because I sent in a perfectly legible paper copy of the return. The fact that whoever was looking at my return couldn’t read the first 6 lines tells me that these returns are being faxed/scanned or otherwise transferred all over the place, which is why they are also losing all of the adoption paperwork that goes along with it and claiming fraud. They should just issue the refunds without delay and do all their reviewing after the fact. If they find someone who they believe to be fraudulent, they can deal with it later. My guess is that they won’t find very many. Also, the fact that they aren’t giving any sort of timeline to have this resolved is troubling. It wouldn’t take much to hire some additional temporary workers to get these processed. And why don’t they have access to the county records? You’d think it would be a simple phone call to the county to verify the validity of the adoption documents. If they have 72,000 returns, and they spend one hour on each return, which should be plenty of time for most returns, it would only take about 3,000 hours to process these. Or, a team of 20 people working 8 hour days for about one month. This is so maddening!
Hi,
Two examples (the first just a parent, but the second a formal nonprofit) of where people have been emailing in, if they feel that they were been been improperly denied the adoption credit or are even being fined.
http://urbanservant.blogspot.com/2011/06/adoptive-families-being-fined-under.html
Another one is here:
http://www.nacac.org/
There are other groups on social networking sites, and links to a Facebook one are on these sites. Of course none of these groups can work with the IRS for you. The groups are just trying to identify patterns, to assist people as they work through the appeals process that Mr. Perez sketched out in an earlier comment.
We sent in all of our paperwork twice. Have gotten letters with delays etc. Now, we were denied the credit without explanation and fined $3300 for trying to use the asoption credit. We did indeed adopt 2 special needs children! In our case ours was only even a rollover from previous years. They had no dispute with our claiming it in 2008 or 2009, just denied it this year and are not asking for the back pay? This doesn’t make sense and now we are stuck trying to hire someone to help us out of this mess!
I am so disheartened to read what was stated by the IRS spokesman in his testimony. That those who went to examinations were:
Of these, 42,399 (58 percent) either had no required documentation or the documentation was invalid or insufficient. According to IRS procedures, each of these claims will be sent to the Examination function for further review.”
due to insuffienient documentation???? We filed early, and correctly regarding our two special needs foster care adoptions. (both carryforward amounts) PRIOR TO SUBMITTING I CALLED THE IRS DIRECTLY VERIFYING THE EXACT SUPPORTING DOCUMENTATION THEY REQUIRED!! I sent ALL OF IT! ….since then TWICE MORE!
While I can understand fraud can occur, and the IRS does need to be careful…we were within our legal right under the tax code to claim, greatly NEED the refund and are now greater than 150 days in review! This is simply incompetent, and an injustice to tax payers. Even the IRS states typical audit review time should be no longer than 6-8 weeks.
I am in the same boat as everyone else – filed all required documentation on March 6th and I’m still waiting for my refund. Now we wait and the government not only has to pay us our refund, they have to pay us interest! The interest and the cost to send all these letters in duplicate and triplicate will add up to quite a bit of money. I’m surprised that none of the major news channels haven’t picked up on this huge waste of money!!!
58% had incomplete or incorrect documentation? Hogwash (I’d like to say something stronger!)
I don’t believe it for a minute. They weren’t prepared and now they’re trying to pick up the pieces – at our expense….
I filed my taxes on Feb, 26th. i have 3 adopted children. Two are special needs adopted from Foster Care and the onther is from Haiti. They were all adopted within 3 months of each other back in 2009 and are carryover credits. I have beed in review since March and I called each week on Wednesday. I am now claiming hardship to try and get my refund. All of this really has me worried and I wonder if I will get fined too.I sent in everything that was asked for and actually had cashiers check copies from my bank, but a couple of them were fuzzy and hard to read cause they came from the bank that way. I wonder if they will give me a hard time about that.How can they fine you? I don’t understand that one. Anyway I think that they are using any excuse to either refuse the money or reduce the amount. Mine went to Austin TX and when I called a week ago, they were working on Late March returns. Any insight would be helpful thanks Robin
I am claiming hardship and my advocate said that it would take “about 2 weeks to get the refund” Does anyone out there know how long it really takes after they close the case? Mine went to Austin, TX.
Thanks
My case was “closed” on a Tues and I had the refund that same Friday
This is terrific. I love it when something that seems like a no brainer manages to make it through the red tape of tax laws.
We are currently waiting for our adoption credit to be processed. All the documentation needed, according to the instructions were sent. Of course, as usual the instructions were at best vague.
We have sent the proper documentation, for a second time, and the process is still stalled. This would not be much of an issue if not for the fact that the IRS demands punctuality from the tax payer, with timely filing and payments.
As tax payers we are penalized if we are late with filing or payment. Yet, the IRS is allowed to make excuses for taking longer than necessary for their process. A double standard at best.
The fact is, they are targeting those filing this credit and performing full audits in an effort to avoid paying the full credit. The IRS needs to be at the least overhauled, and preferably replaced with a system that actually makes sense.
I think you need to get an advocate working for you. You do that by calling the iRS and claiming hardship. If you have a shutoff notice or an eviction notice, thats ususlly what they need, but in my case, I had a notice from Unemployment stating that mine had run out. I told a friend of mine about this and she calimed hardship because her taxes are late. If there is some kind of hardship, that is all they need.
Please someone respond to this. I just FedEx’d a stack of receipts, bank statements, credit card statements, etc. to the IRS for review. We didn’t see the part on the letter that said we’d be denied the credit if it took us longer than 30 days to respond. We were waiting for some old credit card statements. We moved to a property that had formerly been abandoned and had to request the material a second time. (I’m assuming the abandoned part had something to do with it.) We took 50 days to respond. Can they really deny us our credit?
Just letting all of you know that my money was dd into my bank account this AM. They even paid interest! I had an advocate working for me and I claimed hardship and it really made all the difference. It’s something that the rest of you might want to consider. Have a great day! I know I will!
Robin
Our stuff is also in the Austin Office, we originally filed March 3rd in Atlanta, received our partial refund sometime in April, not sure of of exact date. Received letter 1 stating do nothing but your taxes are now in Austin for review, our stuff was received in Austin on April 19, letter 2 you have 30 days to resubmit the 49 pages of documents that we sent in the first time. Received letter 3, 4 and 5 now saying how sorry they are for not giving us a response…Got to love the computer generated letter.
I check the WMR status daily with NO updates, my husband calls the 1-800 number and the 0922 number but just get the same old run around. Just yesterday he finally submitted letters to our senators and congressmen to see if they will step in and do anything. I think that as of today the IRS has had our taxes for 133 days.
I have a friend who had 4 adoption credits, but wasn’t hard up @ all for money. She had been waiting forever too and when i claimed hardship, she called and looked into it. they told her that since it had been so long with still no return, that she was entitled to claim hardship. Anyway she claimed hardship and just got word that her return has been processed and she should have her return within 2 weeks. She filed the same time that you did. In a way, you and I are lucky cause the Tax advocates in Austin are WONDERFUL! Mine was named susan Zuniga and when I would call to talk to her SHE WOULD ACTUALLY ANSWER THE PHONE! You really need to call and claim hardship. Like I said, I’m pretty sure you are entitled to claim it just because of the time it has taken, but you can use a lot of things for hardship ike a shotoff notice of even unpaid medical bills. My friend hadn’t paid her property taxes yet and she was going to use that as hardship, but they told her it wasn’t necessary because of the time it had already taken. PLEASE CALL IRS AND LOOK INTO CALIMING HARDSHIP!
What a nightmare. I sent all three years of amended returns since my twins special needs adoption, all three returns mailed with the adoption documentation from 2008 and it took them 6 weeks just to assign it for examination. Since then still have received no word on anything at all. I sent all the documentation I have. I have nothing else to send, even if they want it. So I must have sent what they needed, but they just don’t want to pay it and they can get away with everything they want, so why should they help. Now that my vehicle is gone and I need surgery, I guess I should just pull all of my teeth and ask the tooth fairy for help. Surely can’t be worse than dealing with this. Good Luck Everyone!
We have sent thorough paper work in two times once to Fresno and once to Maryland . Now we are being told that we are being fined $2500 for penalties. This is very wrong and ridiculous. This is not worth the hassle and is very unfair. What would happen if we just file an amended 2010 tax return and remove this credit . The government is broke and basically want to collect more money from taxpayers. Has anyone else had this happen.
We are in same boat.
I filed my tax with same accountant every year.
In 2010, our over sea adopted child was finalized and brought to US. My accountant(CPA) prepared my tax which include adoption credit. A few months later, IRS audit was requesting more documents. After sending all IRS requested documents in 2nd times, (yesterday) we received denied and NOTICE OF DEFICIENCY letter (certified and we have to sign for it). Per IRS, those expenses were not adoption related which include lawyer fees, translation fees, transportation and logging fees, oversea court fees, airfare, pre and post social worker visit fees, our adoption agency fees, IR3 visa fees, child citizenship fees, re-adoption fees, and etc. I did send IRS copy of checks, credit statements and supporting documents.
Also, IRS is charging us a fine for 20% of possible adoption credit refund total amount as a fine.
We have 90 days to file a petition at the Tax Court.
We think that’s totally wrong.
I just received my 5th letter from the IRS. I have been to the federal office and they were no help. I have faxed 2x all the information and has cost me $30. each time. The placement agreement plus all the paperwork from transition from foster to adoption has all been faxed! Last time they only gave me 10 days to refax everything but this is my second letter on the fax I sent 10/17.them wanting to extend the time to 12/27/11. Any ideas? What is even more annoying is I have called so many times asking the IRS what they wanted, that the lady told me I was being a pest!!
Donna, you should contact the Tax Advocacy Service. I have been reading many success stories from people who have a Tax Advocate. TAS website http://www.irs.gov/advocate or call their toll-free line at 1-877-777-4778 or TTY/TDD 1-800-829-4059.
Hopefully the IRS/ US Government has learned a valuable lesson in this situation. The bottom line is: if you offer people a tax refund (drum roll please) they are going to claim it. I just can’t wrap my head around why they offered this as a straight up refund rather than the credit. I am not complaining, nor is anyone else who actually got the refund, but it couldn’t have been a total mystery as to how much money was going to be claimed…
The whole Adoption Refund audit crisis is a horrible example of what can happen when politics push the federal tax code without good consideration of the consequences. After six months of ‘audit’ and hundereds of dollars invested in defending our adoption credit claim the person assigned to our file never actually opened the massive amount of paperwork (every cancelled check for our last five adoptions – as far back as 2005) that we submitted to them when they gave us a 72 hour deadline to provide or be fined $8500 for fraud. They simply issued a ‘no change’ decision and it was all over. Except for the exhaustion of the grueling audit, cost of locating, mailing and faxing five times every single check/reciept/bill/court document and the scary reality that next years taxes are looming on our horizon.
Now I wonder how they are ever going to return those highly private legal documents that we mailed them twice and faxed directly to our auditor three times….they promised when we did it that they would be reurned. I’m unconvinced though – they also said we ‘failed to provide required paperwork’ all five times. Which leaves me laughing since I personally confirmed each transmittal with a phone call and they said they had been received. One of us is in the wrong here – I’m pretty sure I did not dream up all those faxes/mailings/calls.
RE Adoption credits. I have read the 38 comments above here with great interest, and wonder if Colin (#34) filed a petition, and if there has been any finality with the other posters waiting for a refund or to close the exam of the adoption credit.
I am a tax attorney working on a few low income taxpayer clinic cases pro-bono. I just started looking into the adoption issues last week, and the thread of messages here was the best summary of what is going on that I found. I want to know if these issues are being resolved or are adoption parents just giving up?
Thanks so much!
My wife and I adopted two twin boys in 2011 and the adoption was also finalized in 2011. We paid $500 to have our taxes completed by a professional and mailed them in early Feb 2011. In the Final Judgement of Adoption it clearly states according to Florida Statue our boys qualify for Special Needs. After 3 letters requesting more info the IRS disallowed our request for the tax credit. IRS states we did not provide certifed documents proving the boys qualify for special needs and we now owe them 5,700.00 and they will also start charging us a 3% interest. By the way, the Final Judgement of Adoption is a certified document and also a public record certified by the county of HIllsborough and the State of Florida. Although the IRS, just seems to turn their head and not acknowledge a court order that boys meet the requirement of special needs. We currently have sent the same info agiain and also were given services thru the Tax Advocacy program.
I was thinking i was the only one who is having this issue witht the delay in receiving the adoption tax credit. I’ve been waiting for only 60 days which is much less than most of the posts. I’ve recevied one letter from the IRS requesting information. Faxed and sent the “missing” information certified mail 2 weeks ago. I called today and was told my return was “being reviewed” and that i will receive another letter in about 3 weeks. This tells me nothing other than this seems to be a game being played to delay paying out for as long as possible. Of all the credits to screw with IRS has to choose the credit that affects the kids – well done IRS. Well done.