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Please help-a "special-needs" adoption by a RDP in California:

My friend and her partner are RDPs in California. My friend gave birth to twins, a boy & a girl, and the girl is severely brain damanged - can't hold her head, is not responsive, is fed through tubes and no progress is ever expected. She is officially "severely handicappated" and the state of California pays for her homecare.

My friend's partner legally adopted the twins in 2011, and showed adoption credit (one "regular", one "special-needs") on her 2011 federal tax return. The IRS audited the return, found no other issues but allowed two REGULAR credits, and denied "special- needs" credit, stating that "a child meets "special-needs" definition if ALL of the following statements are true:
1. the child was a citizen of the US or its possessions at the time the adoption process began;
2. a state has determined that the child cannot or should not be returned to his or her PARENTS' HOME;
3. the state has determined that the child will not be adapted UNLESS ASSISTANCE is provided to the adoptive parents.

It appears that the rules don't provide for a possibility of an adoption of a special-needs child by the biological parent's RDP, while they do provide for a regular (healthy) child adoption.

Can we contest the IRS determination at all? Please share any advice you might have.

Thank you,
a "special-needs" adoption by a RDP in California
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Tax Professional Answers

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Michael Jacobson
The IRS does not make up the provisions of the Tax Code, Congress does. It seems that your client wants to have it all. The birth parent lives in the same house as the RDP. While the RDP can adopt the child to legalize the 'parental relationship' that would exist if the partners were married, the adoption itself does not have the same legal standing as if a non-related party would have adopted a special needs child as the child is already living in the house.
Leave a Comment 458 weeks ago

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Sherry German
It seems that you might be able to appeal this and by showing the extent of disability and the determinations and payments made by the State of California, claim that the special needs was "obvious" to all. This might work and would certainly need to be acted upon quickly before the time frame for appealing ends. A judicial determination might work also but would likely cost more than the benefit. Somewhere in the California paperwork there is likely to be something indicating the adoptability of the child.
Leave a Comment 435 weeks ago


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