Adoption is a serious investment. The Adoption Tax Credit has for the past 30 years made it easier for families to grow through adoption. A recent report from the Government Accountability Office suggests that the IRS has some problems with this important program — and that they need to take action. Specifically, the GAO found that many adoptive parents don’t even know about the Adoption Tax Credit. They want the IRS to put together a comprehensive educational program to inform American parents of their rights when it comes to this tax credit.
What’s the Adoption Tax Credit?
Many of the costs of the adoption process can be claimed as a tax credit when you file your income taxes. Attorney fees, court costs, travel costs, home study fees, and other essential expenses are covered. However, costs for stepparent adoption are not eligible. There is an upper limit on costs. And many of the costs which are the same for an adopted child and a biological child — like that snazzy crib — are not covered.
Among adoptive parents who know about the existence of the Adoption Tax Credit, there are still many parents who do not know which expenses are covered.
The IRS educational plan
So what’s the IRS educational plan for making sure that adoptive parents know about the credit and how to file for it? The answer is simple: they don’t have one. The GOA thinks they should, and the IRS agreed once the issue was pointed out. They have created a website and a flyer since making this agreement.
Currently, the information provided by the IRS is, according to the GAO, inconsistent, unclear, and hard to find. Taxpayers can’t easily tell what documents they need to keep or which expenses are eligible. Also, the Adoption Tax Credit has been refundable in some years and not in others. Since filers can make decisions about which year to file expenses, that can make a big difference. Yet many adoptive parents don’t know whether the credit is refundable, or don’t know what refundability means. The information about the ineligibility of stepparent adoptions is not included with the list of eligible expenses in most IRS documents. Special needs adoptions are also not always covered.
What’s more, adoption professionals told the the GAO that the materials are written for tax professionals, not for adoption professionals or adoptive parents.
Even with these flaws, state agencies have told the IRS that they would find these materials useful, but the IRS has not issued the materials to these offices on a regular basis — for example, when they are updated. They distribute information at some conferences, but not to adoption attorneys, adoption agencies, or tax professionals.
How do taxpayers figure things out?
The GAO report explains that taxpayers turn to social media and community forums to try to learn about the Adoption Tax Credit. Since taxpayers don’t know the details and many tax professionals are also not clear about the credit, many taxpayers who should claim the credit don’t do so. People who claim the credit may not be eligible or may make mistakes in filing. In fact, tax returns claiming the credit are more likely to be audited than the average return.
So the answer to the question of how people figure these things out may be — they often don’t.
GAO recommendations
The GAO wants the IRS to clarify their instructions, to make sure they are consistent, to distribute them efficiently, and to reach out to the public through effective methods. While the IRS contracted with consultants to work on these goals, the office in charge of these efforts closed in March, 2025, and no educational plan has yet been created.
If you are beginning or continuing the adoption process, be sure to ask your tax professional for the details.