Internal Revenue Service failed to pay refunds for adoption credits on tax returns, families say

By Rosemary Parker

April 14, 2011 / mlive.com

Adoptive families across the country are reeling with the discovery that their long-awaited federal income tax refunds mysteriously do not include the portion — often thousands of dollars — claimed under the adoption tax credit.

Social networking sites are abuzz as parents discover that their electronic refund deposits or checks in the mail are falling short — very short — with no explanation why.

"I was like, 'What, it's everybody? Not just me?'" said Laura Gordon of Colon, whose refund was $6,800 less than expected.

Charges for legal fees, court costs, medical costs, counseling and adoption agency fees can be staggering.

At Bethany Christian Services in Kalamazoo, for instance, domestic infant adoptions cost $19,800 and international adoptions can be as much as $45,000, said Brad Keller, director of the agency's Kalamazoo branch.

And it's all due up front.

As Monday's tax deadline approaches, most adoptive families have long since sent in their tax filings, in anticipation of a hefty tax credit refund — up to $13,171 this year — that helps them replenish depleted savings accounts or pay off the credit card debt.

"The home-study people from the agency said, 'You will get this (tax refund),' our lawyer said, 'You will get this,' even the woman who did our taxes" assured them, Gordon said.

"We've begged, borrowed, whatever we could," Gordon said. "We drained everything we had to pay for the adoption," which was finalized in November.

"We need that (refund) money to get caught up," he added.

Show me the money

This is the first year that parents may file for a credit in the entire amount of their expenses, up to the $13,171 cap, for adoptions completed in 2010, said Mary Boo, assistant director of the North American Council on Adoptable Children in St. Paul, Minn.

They may also file for remaining expenses for children adopted in earlier years, when the refund credit could not exceed taxes paid. Adoptive parents of special needs children are allowed the maximum tax credit regardless of their adoption expenses, Boo said.

Her advocacy group has heard from hundreds of families across the country who, like Gordon, learned of a problem only when their refund was unexpectedly small.

"Almost all of the parents we heard from had not yet received their adoption tax credit," Boo said, " although most have received their regular refund."

In many cases, there has been no communication from the IRS explaining the discrepancy, she said.

Luis D. Garcia, Internal Revenue Service spokesman for Michigan, said the IRS is simply being very careful in its review of the adoption credit claims.

There is "no systemic issue, no snag or snafu with processing of those returns," Garcia said. "Many of these returns are missing documents or contain errors."

Gordon said with no explanation of her family's return shortfall, she checked the Internal Revenue Service website, then called the IRS.

"They said needed certification of finalization of adoption from the courthouse," Gordon said. "I had sent an original," but then sent another. "Then they said they needed records of all lawyers' fees, and I sent all that again, too. They are still asking for stuff we already sent."

"They've gotten duplicates now, but they still keep delaying, delaying. They're making it sound as if we may never get it."

That's Travis Ericksen's fear.

"It's causing a lot of anxiety for me," the Kalamazoo father said. The Ericksens are counting on this year's refund to help pay for costs associated with the adoption of a second child this year, he said. The adoption tax credit program is set to expire at the end of 2011, he said, and he worries about retroactive changes that may affect this year's refunds.

"I'm especially concerned that with the federal government almost coming to a shutdown, with them trying to make massive cuts," he said. " I'm afraid that this is an easy place to cut from, since it's not written into law that it will be extended beyond this year."

The Ericksens used a certified public accountant to prepare their claim and, like the Gordons, were careful to follow every instruction to the letter, he said. "We used to do our taxes on our own, but we wanted to make sure every 'i' was dotted, every 't' crossed. Now everyone I know of is in the same boat. I've been searching online asking, 'Has anyone gotten (the adoption tax credit portion of) their refund yet?' No one has."

A lot of extra work

Garcia said parents can be sure that "if you are entitled to that money, you will get that money," and added that since processing of the the itemized claims did not begin until Feb. 18, the IRS is still within an eight-week response window. People could begin receiving the adoption tax credit portion of their refund any day, he said.

"We are absolutely not slowing anything down artificially, there is no nefarious plan to hold on to the money," he said. "We're just being very careful because it's a big chunk of money."

Allison Shockley of Mattawan said she just received a letter requesting a written statement describing each expense and copies of canceled checks or receipts for each item claimed, she said, even though previous years' partial refunds for the same children were processed electronically, without a hitch.

"This is the third adoption credit I've filed for and for 6 out of last 7 years I've never had an issue, " she said.

Discrimination?

What Garcia views as caution and due diligence on the part of the IRS, many adoptive parents view as unfair and discriminatory.

"I just feel like it's really unfair. We followed the rules for claiming this credit, sent in all of the proper documentation, we had to wait a year to even claim it," said Beth Ericksen. "It's really unfair for them to hold it up now when we have met all their requirements, followed all of their rules, without any warning or explaination — not even an email from IRS."

"I find it ironic how adoptive parents go through a lot of scrutiny and ultimately the courts decide based on all the evidence that we are trustworthy enough to raise and financially provide for children, but the IRS doesn't trust us or our Certified Public Accountants to fill out our taxes correctly," Travis Ericksen posted on his Facebook page this week. "If the courts trust us why doesn't the IRS trust us? It's insulting!"

In anticipation of a lengthy wait while she complies with additional instructions, "I'm thankful I borrowed money from my dad, " Shockley said. "I had to call and say, 'Sorry.'" Thankfully, we're not paying interest. "