Discussion:Adoption Credit coordinating with Employer pre tax benefits

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Discussion Forum Index --> Tax Questions --> Adoption Credit coordinating with Employer pre tax benefits


Tinley tax (talk|edits) said:

26 February 2007
I have a client that incurred $16,300 of expenses when she adopted a foreign child in 2005. $2,000 of these benefits were paid by her employer.

When I prepared the return in Lacerate tax software in 2005, I didn’t notice that the software had put on Form 8839 that only $5,000 of the credit was allowed. From what I can tell it is referring to some pre 2002 rules saying that if you received pre tax employer reimbursement on expenses then you had to put $5,000 on line 5 as qualified adoption expenses.

I found an article in RIA Checkpoint "A-4416. Coordination of adoption credit and exclusion of employer-provided adoption assistance" that the credit and employer provided adoption assistance can be coordinated.

It gave an example of a tax payer who spent $11,500 on an adoption personally. Additionally, an employer paid an additional $10,000 for the adoption. The article specifically says that the $10,000 from the employer is excluded from income as it is provided on a pre tax basis.

Additionally it says that the taxpayer can take the $10,630 credit on their tax return.

In Masters tax guide I found a section under Adoption Credit and coordinating employer benefit, where it also said that any expenses in excess of the employer's reimbursement can be claimed as a credit.

I also checked 2005 quick finder and it is saying the maximum credit and exclusion of $10,630 for each effort to adopt applies per child. Then it says that the limits apply separately if credit and exclusion are both taken.

It appears that I have three sources saying that the software is preparing this incorrectly.

Does any one have any experience with this area? It's very rare I find the software is preparing something incorrectly.

Kevinh5 (talk|edits) said:

26 February 2007
My research is that the taxpayer can have an adoption exclusion (tax free employer paid benefit) plus a credit for other amounts paid up to the maximum each. You can't get the credit for the exclusion. The credit has to be for other monies paid.

Tinley tax (talk|edits) said:

26 February 2007
Kevin,

I agree with you.

The client paid $16,000 total and only had only received $2,000 as a tax free employer paid benefit. So, I don't need credit for the exclusion.

Since Lacerte put $5,000 in the qualified expense Does that mean I have to ammend last year's return to change it show change the qualified limit at $10,600 for line 5 on Form 8839?

Kevinh5 (talk|edits) said:

26 February 2007
I don't know Lacerte software, but it seems to be wrong.

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