n-10-66.pdf

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Part III - Administrative, Procedural, and Miscellaneous

26 CFR 601.105: Examination of returns and claims for refund, credit, or abatement;
determination of correct tax liability.
(Also Part 1, §§ 23, 36C.)

Notice 2010-66

SECTION 1. PURPOSE

This notice provides interim guidance on the adoption credit. Section 10909 of
the Patient Protection and Affordable Care Act, Pub. L. 111-148, 124 Stat. 119
(PPACA) amended § 23 of the Internal Revenue Code to make the adoption credit
refundable, redesignated § 23 as § 36C, and made certain other changes, effective for
taxable years beginning after December 31, 2009. Pending the publication of
regulations, this notice provides rules for computing the adoption credit for a taxable
year beginning in 2010 and for substantiating claims for the adoption credit. See
Notice
97-9, 1997-1 C.B. 365, and Notice 97-70, 1997-2 C.B. 332, for general guidance on the
adoption credit.
SECTION 2. BACKGROUND
Section 36C allows a refundable tax credit for qualified adoption expenses
(QAE). QAE are the reasonable and necessary adoption fees, court costs, attorney
fees, and other expenses directly related to, and for the principal purpose of, adopting

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an eligible child. For example, a taxpayer may claim traveling expenses (including
amounts expended for meals and lodging while away from home) paid or incurred to
adopt an eligible child. A taxpayer may claim QAE paid or incurred for an unsuccessful
domestic adoption.
For both domestic and foreign adoptions, if a taxpayer pays or incurs QAE during
or after the taxable year in which the adoption is final, the credit is allowable in the
taxable year in which the taxpayer pays or incurs the QAE.
For domestic adoptions, the credit is allowable for QAE that a taxpayer pays or
incurs in a taxable year before the adoption is final. However, a taxpayer may not claim
the credit for those QAE until the next taxable year.
For foreign adoptions, the credit is allowable only in the taxable year in which the
adoption is final. QAE that a taxpayer pays or incurs in a taxable year before the
adoption is final are treated as paid or incurred in the taxable year in which the adoption
is final. See
Rev. Proc. 2010-31, 2010-40 I.R.B. 413, for determining the finality of
foreign adoptions subject to the Hague Convention on Protection of Children and Co-
operation in Respect of Intercountry Adoption (Hague Convention) and the Intercountry
Adoption Act of 2000, Pub. L. 106-279, 114 Stat. 825, 42 U.S.C. §§ 14901-14954. See

Rev. Proc. 2005-31, 2005-1 C.B. 1374, for determining finality of foreign adoptions from
countries not party to the Hague Convention.
For a taxable year beginning in 2010, the credit is limited to $13,170 of the
aggregate QAE that a taxpayer pays or incurs for all taxable years. For 2011 this dollar
limitation will be adjusted as necessary for inflation. Expenses for an unsuccessful
domestic adoption of an identified child are aggregated with the expenses of a

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successful adoption of another child in applying the dollar limitation. See
Notice 97-9,
section 1.G., Example 3.
Under §§ 36C(a)(3) and 36C(d)(3), a taxpayer may claim the credit up to the full
amount of the dollar limitation for an adoption of a child with special needs, as
determined by the state where the adoption occurs, in the year in which the adoption is
final without regard to the amount of QAE the taxpayer pays or incurs.
The credit is subject to an income limitation based on the taxpayer’s modified
adjusted gross income (MAGI). The income limitation applies to QAE in the first taxable
year the taxpayer claims the credit for that QAE. For taxable years beginning after
December 31, 2009, the allowable credit begins to phase out for taxpayers with MAGI of
$182,520 and is completely eliminated for taxpayers with MAGI of $222,520. The
income limitation may be adjusted in future years for inflation.
Prior to amendment under PPACA, the credit was not refundable. Former
§ 23(c) allowed a taxpayer to carry forward the amount of the credit in excess of the
taxpayer’s tax liability to five subsequent taxable years. The income limitation did not
apply to an amount carried forward to a later taxable year.
Section 36C(f)(2)(B) authorizes the Secretary of the Treasury to require
taxpayers to provide information substantiating claims for the adoption credit.
SECTION 3. INTERIM GUIDANCE
1. Amounts Carried Over from Earlier Taxable Years to a Taxable Year Beginning in
2010
An amount of an adoption credit claimed in an earlier taxable year that a
taxpayer carries forward to a taxable year beginning in 2010 is allowable as a

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refundable tax credit. An amount that a taxpayer carries forward to a taxable year
beginning in 2010 is not subject to an income limitation in that taxable year.
The following examples illustrate these rules.
Example 1. (i) In 2008, Taxpayer pays $2,000 of QAE to adopt an eligible child
who is a citizen of the United States. In 2009, Taxpayer pays an additional $8,000 of
QAE and the adoption becomes final. The adoption credit for $10,000 of QAE is
allowable in 2009.

(ii) Taxpayer’s tax liability for taxable year 2009 is $6,000, and Taxpayer applies
$6,000 of the $10,000 credit against Taxpayer’s 2009 tax liability. Taxpayer carries
forward $4,000 of the credit to 2010.

(iii) In 2010, Taxpayer’s tax liability is $3,000. Taxpayer applies $3,000 of the
$4,000 carried forward adoption credit against Taxpayer’s 2010 tax liability. Taxpayer is
entitled to a refund of the remaining credit.

Example 2
. (i) The facts are the same as in Example 1, except that in 2010,
Taxpayer pays an additional $2,000 of QAE. Taxpayer’s income exceeds the upper
income limitation for 2010.

(ii) Because of the income limitation, the adoption credit is not allowable for the
$2,000 of QAE Taxpayer pays in 2010. However, Taxpayer may apply the $4,000
adoption credit carried forward to reduce Taxpayer’s tax liability for 2010 and may
receive a refund of any carried forward credit that exceeds Taxpayer’s tax liability.

2. Substantiation Requirements

A taxpayer must provide a copy (unless otherwise specified) of the applicable
documents described in paragraph a. or b. below to substantiate the taxpayer’s
adoption or attempted adoption of an eligible child. A taxpayer also must comply with
paragraph c. below for a special needs adoption. The taxpayer attaches the
document(s) to the taxpayer’s income tax return for the taxable year that the taxpayer
claims the credit, beginning after December 31, 2009.
a. Domestic and foreign adoptions that have been finalized

(1) For a domestic or foreign adoption finalized in the United States, an adoption

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order or decree.
(2) For a foreign adoption governed by the Hague Convention and finalized in
another country:
A. A Hague Adoption Certificate (Immigrating Child),
B. An IH-3 visa, or
C. A foreign adoption decree, translated into English.
(3) For a foreign adoption from a country that is not party to the Hague
Convention:
A. A foreign adoption decree, translated into English, or
B. An IR-2 or IR-3 visa.
b. Domestic adoptions that are not final

(1) An adoption taxpayer identification number, obtained by the taxpayer for the
child, included on the taxpayer’s income tax return (instead of attaching a document),
(2) A home study completed by an authorized placement agency,
(3) A placement agreement with an authorized placement agency,
(4) A document signed by a hospital official authorizing the release of a newborn
child from the hospital to the taxpayer for legal adoption,
(5) A court document ordering or approving the placement of a child with the
taxpayer for legal adoption, or
(6) An original affidavit or notarized statement signed under penalties of perjury
from an adoption attorney, government official, or other person, stating that the signor:
A. Placed or is placing a child with the taxpayer for legal adoption, or
B. Is facilitating the adoption process for the taxpayer in an official capacity,

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summarizing the facilitation.

c. Adoptions of special needs children
In addition to the documentation required under paragraph 2.a. of this notice, a
taxpayer claiming the adoption credit for a child with special needs must attach a copy
of the state determination of special needs to the taxpayer’s income tax return for the
taxable year that the taxpayer claims the adoption credit for a child with special needs.
d. Information to be included in documentation

An order or decree must include information that establishes that the taxpayer’s
adoption of the eligible child has been finalized and the date finalized, and a special
needs determination must include information that establishes that the state has made a
determination of special needs for the eligible child. A taxpayer may redact sensitive
personal information from an adoption order or decree or a special needs determination.
However, the Internal Revenue Service may require the taxpayer to provide an
unredacted copy of the document if needed to substantiate the claim for the credit.
SECTION 4. EFFECTIVE DATE
This notice is effective for taxable years beginning after December 31, 2009.
DRAFTING INFORMATION
The principal author of this notice is Marilyn E. Brookens of the Office of
Associate Chief Counsel (Income Tax & Accounting). For further information regarding
this announcement, contact Ms. Brookens at (202) 622-4920 (not a toll-free call).