Running Amok: The IRS Targeted Adoptive Families

There's been much reporting about the ridiculous review process the Coalition for Life of Iowa was subjected to during their process to become a tax-exempt group.  One question related to the content of their prayers, and an IRS agent is reported to have told the pro-life group that "your application’s ready to go. However, it will not be approved until you send a letter signed by your entire board under penalty of perjury saying that you will not protest at Planned Parenthood."  Now, it seems the IRS targeted adoptive families in what is rapidly becoming an agency that is running amok in Washington.

David French wrote in National Review yesterday that:

In 2012, the IRS requested additional information from 90 percent of returns claiming the adoption tax credit and went on to actually audit 69 percent. More details from the Taxpayer Advocate Service:

During the 2012 filing season, 90 percent of returns claiming the refundable adoption credit were subject to additional review to determine if an examination was necessary. The most common reasons were income and a lack of documentation.

Sixty-nine percent of all adoption credit claims during the 2012 filing season were selected for audit.

Of the completed adoption tax credit audits, over 55 percent ended with no change in the tax owed or refund due in fiscal year 2012. The median refund amount involved in these audits is over $15,000 and the median adjusted gross income (AGI) of the taxpayers involved is about 64,000. The average adoption credit correspondence audit currently takes 126 days, causing a lengthy delay for taxpayers waiting for refunds.

While many returns had missing or incomplete information (more on that in a moment), what was the outcome of this massive audit campaign? Not much:

Despite Congress’ express intent to target the credit to low and middle income families, the IRS created income-based rules that were responsible for over one-third of all additional reviews in FY2012.

Of the $668.1 million in adoption credit claims in tax year (TY) 2011 as a result of adoption credit audits, the IRS only disallowed $11 million — or one and one-half percent — in adoption credit claims. However, the IRS has also had to pay out $2.1 million in interest in TY 2011 to taxpayers whose refunds were held past the 45-day period allowed by law.

This issue does strike close to home.  As a Korean adoptee, I would hope the federal government would incentivize families willing to take in unwanted or abandoned children from overseas and at home.  The process is incredibly expensive, and when families needed the assistance from the tax credit – all they got was a lousy audit.

[T]he IRS responded by implementing an audit campaign that delayed much-needed tax refunds to the very families that needed them the most. Oh, and the return on its investment in this harassment? Slightly more than 1 percent.

This audit wave got almost no media coverage, but what was the experience like for individual families? In a word, grueling. Huge document requests with short turnaround times were followed by lengthy IRS delays in processing, all with no understanding for the unique documentation challenges of international adoption.

As French concluded in his piece, he's part of an adoptive family, and there are a multitude of stressful activities associated with the process.  Besides the bureaucratic side of things, you have the possibility that you may need to carefully guide your child through culture shock, identity crisis, and other ailments associated with "not fitting into your environment."  Some Korean adoptees have struggled with this, and pondered if they're Korean or American at heart.  The same goes for any international adoptee. Luckily, I never experienced those issues, but as French aptly noted it's just cruel to be subjected to an audit for such a low rate of return.

all of this [the adoption process] places a great strain on family finances and emotions. To then face an audit on the other side? All so the IRS can collect a whopping 1 percent additional revenue? It’s beyond the pale. If the IRS is concerned about fraud, it can audit random samples, not the vast majority of adoptive families claiming the credit.

Clearly, the IRS has been unhinged, unaccountable, and unethical for far too long.  The agency is bordering in lawlessness.  And attacking Americans for their political beliefs, and their choice to start, or expand, their families is simply outrageous.  The liberal dogma of faith in government is misplaced in the extreme.