Taxpayer Advocate Service: Your Voice at the IRS

National Taxpayer Advocate Annual Report to Congress


Adoption Credit Graphic: Graphic shows how the IRS audits a disproportionate share of returns claiming the adoption credit.  In 2012, the IRS audited 69% of these returns, yet eventually denied just 1.5% of the dollars claimed on these returns, meaning most of these families had their refunds needlessly delayed.



Congress created the adoption tax credit to help low and middle income families afford the costs of an adoption, which are estimated to run as high as $40,000. Yet the IRS, partly using income-based rules, selected 69% of returns claiming the credit during the 2012 filing season for audit, as compared with one percent of tax returns overall. These audits imposed significant burden on the affected taxpayers for several reasons, notably because the median refund claim constituted nearly one-quarter of the taxpayers’ adjusted gross income for the year, and the audits on average took over four months. Despite the burden, the payoff was relatively small. The IRS denied only about 10% of the amounts claimed in Tax Year 2010, and as of mid-November, the IRS had denied only about 1.5 percent of the amounts claimed in Tax Year 2011.

Many affected taxpayers came to TAS for assistance, with 83% receiving full relief. The excessive focus on returns claiming the adoption credit burdened many taxpayers and could have the effect of negating Congress’s intent to encourage adoptions.

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The IRS’s misguided procedures, and its failure to adequately adjust these processes when it learned its approach was seriously flawed, have caused significant financial harm to thousands of families who are selflessly trying to improve the lives of vulnerable children.

- Nina Olson, National Taxpayer Advocate

Other Most Serious Problems