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Mishandled adoption tax returns being reviewed

To help families recover from the expenses of adoption, the government provided tax credits aimed at adoptive parents. Sadly, a recent Internal Revenue Service review is adding to the stress and expense, and the adoptive parents that the government was trying to help are not happy.

Adoption is long, painstaking and expensive. Couples frequently spend tens of thousands of dollars to adopt and care for a child. In Wheat Ridge, Colorado, where civil unions were recently allowed, gay and lesbian couples are also eager to grow their families through adoption.

The government also wants to encourage adoption, and recently passed a law allowing the offsetting of many of the monetary burdens. Now, the IRS is accused of mishandling the tax returns of nearly 90 percent of families that claimed the adoption credit by flagging them for further review. The majority of which resulted in no changes.

The problem with the tax returns started when the Patient Protection and Affordable Care Act of 2010 was passed. Popularly known as "Obamacare," it changed how the tax agency is to handle tax credits related to adoption. The maximum credit was raised to $13,170 per child. It also made the credit refundable and retroactive, boosting a family's tax refund by thousands.

According to tax experts, many families did not qualify for the full credit in the past. Since the new rules are retroactive, it made families dig harder into past returns and made them eligible for larger refunds. It made the total amount of refundable money grow almost exponentially.

Some cited that the IRS was probably surprised by the number of claims because they underestimated how many families were choosing to adopt. Concerns of possible fraud may have played a part in the unusually high level of review these claims received. Those affected found that complying with the tax requirements was complicated. Some feel they had to go through unnecessary scrutiny only to be shortchanged.

While this information may seem discouraging, it should not dissuade potential and current adoptive parents. Laws do change. and, seeing the problem, lawmakers were quick to respond. Those looking to adopt should research all of their rights and responsibilities. Having a child is a gift, and legal ambiguity should not be a reason to not adopt.

Source: WBIR, "Tax credit meant to help gets many flagged for review," Bob Smietana, May 25, 2013.

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