Section 36C of the Internal Revenue Code authorizes an adoption credit for qualified adoption expenses paid by a taxpayer to adopt an eligible child. Many lesbian couples incur adoption expenses when they have children. One partner is the birth mother and the other partner will go through a “second parent adoption” in order to solidify the legal relationships within the family. Adoption expenses of this sort are clearly covered by the statute. But in recent weeks, a number of IRS notices have been sent to lesbian mothers denying them the credit. How can this be?
Section 36C sets forth the rules governing availability of the adoption credit. Anyone adopting a child who is under age 18 (an eligible child) can deduct all qualified adoptions expenses. Adoption expenses are not qualified if they are for illegal adoptions, for carrying out surrogate parenting agreements, or if they are for the adoption of the child of the taxpayer’s spouse. The credit is not available if the adoption expenses were paid by a grant or an employer plan. But, otherwise, there are no additional limitations, requirements, or restrictions.
There are two primary reasons that seem to have been given by the IRS in denying the credit to a number of mothers who claimed the credit in 2010. The most common explanation is that the birth mother did not terminate her parental rights as part of the adoption. That is true. That is the way second parent adoptions work. But there is nothing in the Internal Revenue Code, Treasury Regulations, or published rulings that requires the termination of parental rights. Another explanation that has been given is that the adopting mother is the domestic partner of the birth mother. But there is nothing in the Internal Revenue Code that says you cannot claim the credit for the adoption of your domestic partner’s child.
The only explicit restriction is that you cannot claim the credit for the adoption of your spouse’s child. But even if the couple were fortunate enough to live in a state that recognized their marriage, under DOMA (Defense of Marriage Act), the federal government is prohibited from recognizing the marriage. DOMA has, in effect, written in an exception to Section 36C for stepparent adoptions when the spouses are of the same sex.
Some people may think it strange that stepparent adoptions do not qualify for the credit if the spouses are of opposite sex but do if the spouses are of the same sex. And some people may even think it strange to allow domestic partners or others in a committed relationship to claim the adoption credit when spouses cannot. But the situations are very different. State recognition of the marriage helps to protect opposite sex couples and their children. On the other hand, many second parent adoptions occur in states where the second parent is treated as a stranger to the rest of the family. Adoption expenses are necessary to protect the children in these families. Besides, Congress has written a clear law. The adoption credit is widely available except when the expenses are incurred by spouses in a stepparent adoption. That limitation cannot be applied to a lesbian couple, whether they are married or not.
So, what should these taxpayers who have received negative IRS notices do? One possibility would be to ask the IRS what authority supports this position. Another, as suggested by one attorney, would be to write the IRS a thank you note and tell them that since you are being treated the same as spouses for purposes of the adoption credit, you will gladly begin claiming all the other spousal benefits offered by the tax law.
