HOW THE IRS FINDS YOUR BANK ACCOUNT AND LEVY YOU!

Is the IRS getting ready to levy your bank accounts and wages? If they are, how do they know where you bank and work?

In most cases, your bank or employer tells them.
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Sometimes, the information the IRS has to levy was supplied by you.
If you have a bank account that pays you interest, that interest is reported to the IRS on Form 1099 INT, along with the name of your bank.  Your bank isn’t reporting the information to the IRS because they want to, they are doing it because they have to.  Tax laws require banks to tell the IRS the amount of money that they pay you.  The reason is to permit the IRS to make sure that you are reporting all of your income on your tax return.  But that information is also used by IRS collections to identify where you bank to levy your accounts.

The same is true of where you work.  If you are self-employed and work as an independent contractor, tax laws often require your customers to report the amount that they pay you to the IRS on Form 1099-MISC.  Again, the IRS uses this information as a match against your tax return to ensure that all of your income is on it.  But the IRS database that contains the name and address of customers who paid you is also available to an IRS Revenue Officer or IRS Automated Collection Service employee to use to levy your pay.

An IRS levy on subcontractor pay is only valid on what you are owed at the time; they are not ongoing and continuous on future pay.

However, if you are employed and are paid wages, an IRS levy is continuous on every paycheck until the levy is released.  And your employment is reported to the IRS on Form W-2, and is made available to IRS collection personnel.

It is possible that you may have previously paid the IRS with a check, either as part of a prior installment agreement, or to pay the tax due on your tax return when you filed it.  Presume when you pay the IRS, they retain the banking information you provide them with your payment, and can use that to levy you.
Bear in mind the information that the IRS has about your bank accounts and wages is not absolutely, 100% current.  The IRS has the information from your prior years’ income and tax returns.  If they IRS wants to levy you in 2014, for example, they will be relying on information in their database that was reported to them on your 2013 taxes.  If you are no longer banking or employed at the same place you were previously, an IRS levy could go to an empty source.

Alternatively, you may have told the IRS where you bank or work.  If you call the IRS at their Automated Collection Service to discuss your tax debt, one of the first questions they will ask you is where you bank and work.  The purpose is to update their database and to ensure accurate forms of enforcement, if necessary.

The voluntary disclosure of where you bank and work is not necessarily a bad thing – many IRS collection cases require the full disclosure of your accounts and income for resolution.  Full cooperation is often necessary to get the bear off your back.  But if you disclose this to the IRS, and they did not previously have it, and you can’t come to an agreement, you have just given them ammunition to levy you.
Clients have reported to me that they have seen IRS inquiries appear on their credit report, and Internal Revenue Manual 5.19.4.3.5 permits the IRS to pull credit reports to secure levy sources.
It is possible that the IRS may not know where you bank or work, and can’t find it on their own.  You may not have a bank account, or maybe have one but it is not interest bearing. Maybe your customers do not report your income to the IRS.  Or the information the IRS has on your employment is no longer current.
Knowing who you are dealing with at the IRS also factors into an understanding of what the IRS can do with the information they have, and how they can acquire more information about you.  The IRS has two primary sources of collection enforcement:  Automated Collection Service, and local field collection personnel, known as Revenue Officers.

When you owe the IRS money, it is important to have an understanding of what the IRS already knows about you, and to understand the benefits and risks of telling them more. Benefits include an offer in compromise settlement, a payment plan, or even uncollectible status, where the IRS agrees that you cannot afford to make any payments and they do not levy to avoid creating a financial hardship.  Either way, it is good to know going in whether the degree of risk you face from what the IRS already knows.

Some Recent Tax Settlements:
Mr. Dillard - CA Owed $6884, IRS settled for $400
Mr. Batiste - LA Owed $18513, IRS settled for $2972
Mr. Johnson - CA Owed $21,378, IRS settled for $4500
Ms. Gonzalez - TX Owed $28,816, IRS settled for $1700
Mr. Anthony - NY Owed $14,000, IRS settled for $900
Mr. Wilkes - CA Owed 32,211, IRS settled for $1250

Owe the IRS and need help? Call us to discuss your unique situation (800)790-8574
We are tax relief experts specializing in IRS back tax help, Installment Agreements, tax lien help, wage garnishment release, IRS Offer in Compromises and a whole lot more. Get a free consultation from an experienced tax relief expert today (800)790-8574
or visit  www.advancetaxrelief.com

Connect with us:
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IRS TAX LIEN AND TAX LEVY - KNOW THE DIFFERENCE

The IRS has two ways to collect back taxes:  a Federal tax lien and tax levy.  A tax lien is different from an IRS levy – the lien does not result in the IRS taking your property from you.  That is done by levy.

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You have rights to defend the filing of a lien, and prevent the issuance of a levy.  To be able to assert your rights and protect your property, it is important to  understand and recognize the tools the IRS uses.

Here is what you need to know about the IRS tax lien and IRS tax levy:

IRS TAX LIEN

An IRS tax lien protects and secures the IRS’s rights to your property.  The lien attaches to property you own when it is filed, and property you purchase later.  A Federal tax lien most commonly impacts real estate.

If you own a house, and the IRS files a tax lien against you, the lien would give the IRS an interest your home similar to that of your mortgage company.

Example:  Your house is worth $90,000, and you have a mortgage of $65,000 on it.   There is $15,000 of equity in your house.  Before the IRS filed its tax lien, that equity would be yours.  Now that the lien has been filed, the equity belongs to the IRS.   If you want to sell your house, the IRS gets your equity at closing, not you.

The IRS usually files its Federal tax lien with county recorder or clerk of courts in the county where you residethe property is located.   For the tax lien to affect real estate, it must be filed in the county where the property is located.  It would then encumber all of your real estate in that county.  A federal tax lien does not name the property it attaches to – it automatically encumbers all your real estate in the county it is filed and all of your other personal property.

If the IRS files a lien against you, you have a 30 day window to file an adminsitrative appeal to request reconsideration of the filing.  This is called a collection due process appeal.

The lien expires when the IRS statute of limitations on collection expires – in most cases, 10 years.

IRS TAX LEVY

The purpose of an IRS levy is to take your property.  An IRS levy is the same as a seizure, or garnishment.  The IRS can levy on your wages, bank accounts, subcontractor pay, accounts receivable, even retirement accounts.  The IRS can seize your house, car or your business equipment (although those are rare).   For most people, it is the levy, not the lien, that hurts.

There are only a few things the IRS cannot levy  – these “exemptions” are listed in Internal Revenue Code 6334.   The exemptions you can claim include the right to keep unemployment benefits, workers compensation, most household goods and some tools of your trade from the IRS.

Before the IRS can levy on your property, they must first send you a Final Notice of Intent to Levy.  This is your notice of that the IRS intends to start enforcement against you.  After you receive the Final Notice of Intent to Levy, you have 30 days to file an appeal of the proposed IRS collection action. If you file the appeal, the IRS is prevented from taking action until your hearing is completed.  The purpose of the hearing is to reach a resoluton to levy action before it occurs – offer in compromise, installment agreement, uncollectible, for example.

The IRS does not need to file a Federal tax lien as a prerequisite to levying your wages, bank accounts, etc. – just the Final Notice of Intent to Levy.

In the rare cases of seizure of a house, the IRS must get court approval first.  To do this, the Department of Justice will usually file a lawsuit against you in Federal District Court seeking approval to foreclose and take your house.  Again, this is not a preference of the government.

The Federal tax lien and tax levy gives the IRS different rights against you – the lien as to security in your property, the levy to take it.  Together or apart, the lien and levy are powerful tools for the IRS.

Some Recent Tax Settlements:
Mr. Dillard - CA Owed $6884, IRS settled for $400
Mr. Batiste - LA Owed $18513, IRS settled for $2972
Mr. Johnson - CA Owed $21,378, IRS settled for $4500
Ms. Gonzalez - TX Owed $28,816, IRS settled for $1700
Mr. Anthony - NY Owed $14,000, IRS settled for $900
Mr. Wilkes - CA Owed 32,211, IRS settled for $1250
Owe the IRS and need help? Call us to discuss your unique situation (800)790-8574

We are tax relief experts specializing in IRS back tax help, Installment Agreements, tax lien help, wage garnishment release, IRS Offer in Compromises and a whole lot more. Get a free consultation from an experienced tax relief expert today (800)790-8574

or visit www.advancetaxrelief.com

Connect with us:

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DO YOU HAVE UN FILED/ DELINQUENT TAX RETURNS (FORM 1040)? WHAT YOU SHOULD DO!

You have not filed your tax returns with the IRS in years, and want to put that behind you and make amends with the IRS.

But how many years of non-filed returns do you need to prepare to become compliant with the IRS?

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The good news is that the IRS does not require you to go back 20 years, or even 10 years, on your unfiled tax returns.

In most cases, the IRS requires you to go back and file your last six years of tax returns to get in their good graces.  And then, to make arrangements on payment of what is owed.
That’s right, a fairly reasonable and more manageable six years and working with IRS collections on payment options.

The six year enforcement period for delinquent returns is found in IRS Policy Statement 5-133 and Internal Revenue Manual 1.2.14.1.18.


Part of the reason the IRS requires six years is manpower – the IRS cannot administer and staff the enforcement of unfiled tax returns going back as far as 10 or 20 years.  And believe it or not, the IRS’s records rarely, if ever, go back that far.  The IRS is looking to draw a line in the sand that is consistent with their internal resources, and at the same time secure a good faith effort at compliance from taxpayers to get current.  And that line in the sand is six years.

As for payment of what you will owe after the returns are filed, the IRS offers several programs, including installment agreements, offer in compromise settlements, and even currently not collectible status (where the IRS agrees not to enforce collection of your tax debt as it would create a financial hardship).  In some situations, bankruptcy can eliminate what you owe on the returns, too.

Bear in mind that this is a general rule, and will likely apply to most taxpayers who seek in good faith to come forward to the IRS on their unfiled tax returns.  The IRS can seek enforcement of longer periods if there are unique circumstances, such as income from illegal sources or hiding or concealing assets.  That is the exception, not the rule.

Indeed, not filing your tax returns is most always a civil issue (not criminal) that simply requires (1) filing the last six years’ tax returns and (2) making arrangements with the IRS to repay what you owe.
If you do not have all the records to prepare the returns, the IRS will often have copies of your W2s, 1099s, etc.  There are also methods to recreate your income and business expenses if your records are incomplete – one way, for example, is to determine your living expenses for any year you did not file.  You likely earned at least what you spent, and that forms a basis to recreate your income for a good faith tax return filing.
And criminal non-filing cases are the exception, not the rule.  In most every case, the IRS simply wants you to voluntarily file the last six years returns, and then work with them on an agreement to pay or settle what you owe.  Criminal cases usually involve a level of sophistication and planning on your part that would show an intent beyond the good faith reason why you probably did not file – poor recordkeeping, medical trauma, divorce, fear or procrastination.

You do not have to be held back by unfiled tax returns.  The path to a fresh start is the last six years’ returns, and providing the IRS a plan of repayment. You do not have to be in a state of fear and inaction from the prospects of getting this behind you, and moving on.  It can actually be more manageable than you may think.

Some Recent Tax Settlements:
Mr. Dillard - CA Owed $6884, IRS settled for $400
Mr. Batiste - LA Owed $18513, IRS settled for $2972
Mr. Johnson - CA Owed $21,378, IRS settled for $4500
Ms. Gonzalez - TX Owed $28,816, IRS settled for $1700
Mr. Anthony - NY Owed $14,000, IRS settled for $900
Mr. Wilkes - CA Owed 32,211, IRS settled for $1250

Owe the IRS and need help? Call us to discuss your unique situation (800)790-8574

We are tax relief experts specializing in IRS back tax help, Installment Agreements, tax lien help, wage garnishment release, IRS Offer in Compromises and a whole lot more. Get a free consultation from an experienced tax relief expert today (800)790-8574 or visit our www.advancetaxrelief.com


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WHEN AND HOW THE IRS WILL LEVY YOUR ASSETS

An IRS tax levy really is a last resort collection mechanism used by the IRS. Before the IRS begins to levy there should be fair warning to the taxpayer and the levy should not be a surprise. The IRS offers up many different mechanisms to the taxpayer to get back into compliance with the IRS and if the taxpayer fails to use any of these mechanisms the IRS will continue to get harsher and harsher until it finally begins to levy.

When the IRS will Levy

The IRS claims that they will typically only levy after 3 basic requirements are met. These are the 3 requirements they state:

1. Demanded Payment: They assessed you with a tax amount owed through a letter that was sent to last known address
2. You Didn’t Pay: After receiving the notice, you did not pay the tax amount owed
3. IRS Sent “Final Notice of Intent to Levy and Notice of Your Right to A Hearing”:  This notice will tell you that they have the intent to levy in 30 days if you do not pay or work with the IRS on some other type of settlement

How the IRS Will Levy

The IRS mainly uses three forms of levy. The levy choice they use will be the one that requires the least amount of effort on their part to collect the taxes owed. Below are the three forms of levy the use.

1. IRS Bank Levy: An IRS bank levy is the easiest way for the IRS to seize money from a taxpayer. If the IRS finds that the taxpayer has funds in their bank account, it is likely that they will use this method of levy. With a bank levy the IRS will contact your bank and require them to put an immediate freeze on your bank account. Once the account is frozen, the owner will not be able to withdraw any funds. The account will remain frozen for 21 days until they seize the funds that are in the bank account.
2. IRS Wage Garnishment: Wage garnishment is a form of levy in which the IRS will contact the taxpayer’s employer and require them to withhold a certain amount of money from each pay check in order to pay the taxes that are owed. The employer is required to do this or the employer will be held directly responsible for the amount of money that should have been collected.
3. Asset Seizure: This is the least preferred method to be used by the IRS, but they will use it if they see no other option. The IRS can legally seize just about any asset you own (there are a few things off limits though). Examples of stuff the IRS can seize are houses, boats, cars, and any other asset that they think they can sell and get some value out of.

A tax levy should not be taken lightly. The IRS will get their money in one way or another. The best thing you can do is to work with the IRS on a solution that works for you financially. The IRS makes sure that they have solutions they can offer taxpayers with a wide variety of financial situations. They even have solutions for those taxpayers that have no money and will likely have no money in the future. If you are in serious trouble with the IRS, just work with them and find a resolution. The IRS is more accommodating than most people realize.
Some Recent Tax Settlements:
Mr. Dillard - CA Owed $6884, IRS settled for $400
Mr. Batiste - LA Owed $18513, IRS settled for $2972
Mr. Johnson - CA Owed $21,378, IRS settled for $4500
Ms. Gonzalez - TX Owed $28,816, IRS settled for $1700
Mr. Anthony - NY Owed $14,000, IRS settled for $900
Mr. Wilkes - CA Owed 32,211, IRS settled for $1250
Owe the IRS and need help? Call us to discuss your unique situation (800)790-8574

We are tax relief experts specializing in IRS back tax help, Installment Agreements, tax lien help, wage garnishment release, IRS Offer in Compromises and a whole lot more. Get a free consultation from an experienced tax relief expert today (800)790-8574 or visit our www.advancetaxrelief.com


Connect with us:

BBB PAGE:
http://www.bbb.org/houston/business-reviews/taxes-consultants-and-representatives/advance-tax-relief-llc-in-houston-tx-90024857/

GOOGLE PAGE:
https://plus.google.com/+ADVANCETAXRELIEFLLCHouston

#backtaxhelp #offerincompromise #wesettletaxes #taxlienhelp #wagegarnishmenthelp #taxattorneys  #unfiledtaxreturns #irshelp #taxresolution #taxhelp #freshstart #backtaxhelp

HOW TO SPOT A SHADY TAX PREPARER

Don’t forget to pay attention to the red flags of a shady tax preparer. In many cases, some fraudsters will tell you that by filling out a special form you might qualify for a government grant. These types of grants are not filed with tax returns, so watch out for this claim.

ADVANCE TAX RELIEF LLC – We Solve Tax Problems

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Also, be wary of tax preparers that encourage you to leave out some of your income, or who try to bend the rules a little bit in order to help you “qualify” for a deduction or credit that doesn’t really apply to you. These shady tax preparers are trying to get you a higher refund, but you might be at greater risk for an audit — and these types of preparers aren’t the kind to help represent you later.

Finally, watch out for tax preparers who base their fees on a percentage of your refund. This offers an incentive for them to fudge the numbers a bit. Instead, only work with tax preparers who have transparent fees, and who are willing to share them with you up front.

As you have your taxes prepared this year, make sure you are on the watch for shady practices that could put you in trouble.

Some Recent Tax Settlements:
Mr. Dillard - CA Owed $6884, IRS settled for $400
Mr. Batiste - LA Owed $18513, IRS settled for $2972
Mr. Johnson - CA Owed $21,378, IRS settled for $4500
Ms. Gonzalez - TX Owed $28,816, IRS settled for $1700
Mr. Anthony - NY Owed $14,000, IRS settled for $900
Mr. Wilkes - CA Owed 32,211, IRS settled for $1250
Owe the IRS and need help? Call us to discuss your unique situation (800)790-8574

We are tax relief experts specializing in IRS back tax help, Installment Agreements, tax lien help, wage garnishment release, IRS Offer in Compromises and a whole lot more. Get a free consultation from an experienced tax relief expert today (800)790-8574 or visit our www.advancetaxrelief.com

Connect with us:

BBB PAGE:
http://www.bbb.org/houston/business-reviews/taxes-consultants-and-representatives/advance-tax-relief-llc-in-houston-tx-90024857/

GOOGLE PAGE:
https://plus.google.com/+ADVANCETAXRELIEFLLCHouston

#backtaxhelp #offerincompromise #wesettletaxes#taxlienhelp #wagegarnishmenthelp #taxattorneys  #unfiledtaxreturns #irshelp #taxresolution #taxhelp #freshstart #backtaxhelp

WHEN AND HOW THE IRS LEVIES ASSETS - MUST READ

An IRS tax levy really is a last resort collection mechanism used by the IRS. Before the IRS begins to levy there should be fair warning to the taxpayer and the levy should not be a surprise. The IRS offers up many different mechanisms to the taxpayer to get back into compliance with the IRS and if the taxpayer fails to use any of these mechanisms the IRS will continue to get harsher and harsher until it finally begins to levy.

When the IRS will Levy

The IRS claims that they will typically only levy after 3 basic requirements are met. These are the 3 requirements they state:

1. Demanded Payment: They assessed you with a tax amount owed through a letter that was sent to last known address
2. You Didn’t Pay: After receiving the notice, you did not pay the tax amount owed
3. IRS Sent “Final Notice of Intent to Levy and Notice of Your Right to A Hearing”:  This notice will tell you that they have the intent to levy in 30 days if you do not pay or work with the IRS on some other type of settlement

How the IRS Will Levy

The IRS mainly uses three forms of levy. The levy choice they use will be the one that requires the least amount of effort on their part to collect the taxes owed. Below are the three forms of levy the use.

1. IRS Bank Levy: An IRS bank levy is the easiest way for the IRS to seize money from a taxpayer. If the IRS finds that the taxpayer has funds in their bank account, it is likely that they will use this method of levy. With a bank levy the IRS will contact your bank and require them to put an immediate freeze on your bank account. Once the account is frozen, the owner will not be able to withdraw any funds. The account will remain frozen for 21 days until they seize the funds that are in the bank account.
2. IRS Wage Garnishment: Wage garnishment is a form of levy in which the IRS will contact the taxpayer’s employer and require them to withhold a certain amount of money from each pay check in order to pay the taxes that are owed. The employer is required to do this or the employer will be held directly responsible for the amount of money that should have been collected.
3. Asset Seizure: This is the least preferred method to be used by the IRS, but they will use it if they see no other option. The IRS can legally seize just about any asset you own (there are a few things off limits though). Examples of stuff the IRS can seize are houses, boats, cars, and any other asset that they think they can sell and get some value out of.

A tax levy should not be taken lightly. The IRS will get their money in one way or another. The best thing you can do is to work with the IRS on a solution that works for you financially. The IRS makes sure that they have solutions they can offer taxpayers with a wide variety of financial situations. They even have solutions for those taxpayers that have no money and will likely have no money in the future. If you are in serious trouble with the IRS, just work with them and find a resolution. The IRS is more accommodating than most people realize.

Some Recent Tax Settlements:
Mr. Dillard - CA Owed $6884, IRS settled for $400
Mr. Batiste - LA Owed $18513, IRS settled for $2972
Mr. Johnson - CA Owed $21,378, IRS settled for $4500
Ms. Gonzalez - TX Owed $28,816, IRS settled for $1700
Mr. Anthony - NY Owed $14,000, IRS settled for $900
Mr. Wilkes - CA Owed 32,211, IRS settled for $1250
Owe the IRS and need help? Call us to discuss your unique situation (800)790-8574

We are tax relief experts specializing in IRS back tax help, Installment Agreements, tax lien help, wage garnishment release, IRS Offer in Compromises and a whole lot more. Get a free consultation from an experienced tax relief expert today (800)790-8574 or visit our www.advancetaxrelief.com

Connect with us:

BBB PAGE:
http://www.bbb.org/houston/business-reviews/taxes-consultants-and-representatives/advance-tax-relief-llc-in-houston-tx-90024857/

GOOGLE PAGE:
https://plus.google.com/+ADVANCETAXRELIEFLLCHouston

#backtaxhelp #offerincompromise #wesettletaxes #taxlienhelp #wagegarnishmenthelp #taxattorneys #unfiledtaxreturns #irshelp #taxresolution #taxhelp #freshstart #backtaxhelp

ADOPTION CREDIT AND ADOPTION ASSISTANCE PROGRAMS - FACTS

Tax benefits for adoption include both a tax credit for qualified adoption expenses paid to adopt an eligible child and an exclusion from income for employer-provided adoption assistance.

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The credit is nonrefundable, which means it's limited to your tax liability for the year. However, any credit in excess of your tax liability may be carried forward for up to five years. The maximum amount (dollar limit) for 2016 is $13,460 per child.

Qualified adoption expenses

For both the credit and the exclusion, qualified adoption expenses, defined in section 23(d)(1) of the Code, include:

• Reasonable and necessary adoption fees,
• Court costs and attorney fees,
• Traveling expenses (including amounts spent for meals and lodging while away from home), and
• Other expenses that are directly related to and for the principal purpose of the legal adoption of an eligible child.

An expense may be a qualified adoption expense even if the expense is paid before an eligible child has been identified. For example, prospective adoptive parents who pay for a home study at the outset of an adoption effort may treat the fees as qualified adoption expenses.

An eligible child is an individual who is under the age of 18, or is physically or mentally incapable of self-care.

Qualified adoption expenses don't include expenses that a taxpayer pays to adopt the child of the taxpayer's spouse.

Qualified adoption expenses include expenses paid by a registered domestic partner who lives in a state that allows same-sex second parent or co-parent to adopt his or her partner's child, as long as those expenses otherwise qualify for the credit.

Income and dollar limitations

The credit and exclusion are each subject to an income limitation and a dollar limitation. The income limit on the adoption credit or exclusion is based on your modified adjusted gross income (MAGI). If your MAGI amount for 2016 falls between certain dollar limits, your credit or exclusion is subject to a phaseout (is reduced or eliminated). For tax year 2016, the MAGI phaseout begins at $201,920 and ends at $241,920. Thus, if your MAGI amount is below $201,920 for 2016, your credit or exclusion won't be affected by the MAGI phaseout, whereas if your MAGI amount for 2016 is $241,920 or more, your credit or exclusion will be zero.

You must reduce the dollar limit for a particular year by the amount of qualified adoption expenses paid and claimed in previous years for the same adoption effort. For example, if you claimed a $3,000 credit in connection with a domestic adoption in 2015 and paid an additional $13,460 of qualified adoption expenses in 2016 (when the adoption became final), the maximum credit you can claim in 2016 is $10,460 ($13,460 dollar limit, less $3,000 of qualified adoption expenses claimed in 2015).

In computing the dollar limitation, qualified adoption expenses paid and claimed in connection with an unsuccessful domestic adoption effort must be combined with qualified adoption expenses paid in connection with a subsequent domestic adoption attempt, whether or not the subsequent attempt is successful. For example, assume that in 2014 an individual claimed $8,000 in qualified adoption expenses in an unsuccessful adoption effort. In 2015 and 2016 the individual spent a total of $10,000 in qualified adoption expenses in connection with a successful domestic adoption that became final in 2016. The maximum adoption credit allowable in 2016 is $5,460 ($13,460 dollar limit for 2016 less $8,000 previously claimed.)

The dollar limitation applies separately to both the credit and the exclusion, and you may be able to claim both the credit and the exclusion for qualified expenses. However, you must claim any allowable exclusion before claiming any allowable credit. Expenses used for the exclusion reduce the amount of qualified adoption expenses available for the credit. As a result, you can't claim both a credit and an exclusion for the same expenses. Examples 1, 2, and 3 illustrate these rules.

Example 1. In 2016, the following events occur: (a) You pay $13,460 of qualified adoption expenses in connection with an adoption of an eligible child; (b) your employer reimburses you for $3,460 of those expenses; and (3) the adoption becomes final. Your MAGI amount for 2016 is less than $201,920. Assuming you meet all other requirements, you can exclude $3,460 from your gross income for 2016. However, the expenses allowable for the adoption credit are limited to $10,000 ($13,460 total expenses paid less $3,460 employer reimbursement).

Example 2. The facts are the same as in Example 1, except that you pay $18,460 of qualified adoption expenses and your employer reimburses you for $5,000 of those expenses. Assuming you meet all other requirements, you can exclude $5,000 from your gross income for 2016 and claim a $13,460 adoption credit ($18,460 total expenses paid less $5,000 employer reimbursement).

Example 3. The facts are the same as in Example 1, except that you pay $30,000 of qualified adoption expenses and your employer reimburses you for $13,460 of those expenses. Assuming you meet all other requirements, you can exclude $13,460 from your gross income for 2016. You can also claim a credit of $13,460. Because of the dollar limitation, the remaining $3,080 of expenses ($30,000 total expenses paid, less $13,460 dollar-limited exclusion, less $13,460 dollar-limited credit), can never be used for either the exclusion or the adoption credit.

Timing rules: For what tax year can you claim the credit?

The tax year for which you can claim the credit depends on the following:

• When the expenses are paid;
• Whether it's a domestic adoption or a foreign adoption; and
• When, if ever, the adoption was finalized.

Generally, the credit is allowable whether the adoption is domestic or foreign. However, the timing rules for claiming the credit for qualified adoption expenses differ, depending on the type of adoption.

• A domestic adoption is the adoption of a U.S. child (an eligible child who is a citizen or resident of the U.S. or its possessions before the adoption effort begins). Qualified adoption expenses paid before the year the adoption becomes final are allowable as a credit for the tax year following the year of payment (even if the adoption is never finalized and even if an eligible child was never identified).
• A foreign adoption is the adoption of an eligible child who isn't yet a citizen or resident of the U.S. or its possessions before the adoption effort begins. Qualified adoption expenses paid before and during the year are allowable as a credit for the year when it becomes final.

Once an adoption becomes final, and subject to the dollar limitation, qualified adoption expenses paid during or after the year of finality are allowable as a credit for the year of payment, whether the adoption is foreign or domestic.

As a result of the timing rules, qualified adoption expenses allowable in the current year may include expenses paid in a former year or years. Example 4 illustrates the difference between the domestic and the foreign timing rules.

Example 4. An adoptive parent pays qualified adoption expenses of $3,000 in 2014, $4,000 in 2015, and $5,000 in 2016. In 2016, the adoption becomes final.

If the adoption in Example 4 is domestic, the $3,000 of expenses paid in 2014 is allowable in 2015 (the year after the year of payment), and may be claimed as a credit on the parent's 2015 tax return. The adoptive parent claims both the $4,000 paid in 2015 and the $5,000 paid in 2016 as a credit on his or her 2016 tax return. The $4,000 paid in 2015 is allowable in 2016 (the year after the year of payment); the $5,000 paid in 2016 is allowable in 2016 (the year of finalization). Accordingly, nothing is allowable in 2014, $3,000 is allowable in 2015, and $9,000 ($4,000 plus $5,000) is allowable in 2016. The $3,000 allowable in 2015 reduces 2015 tax liability, with any excess being carried forward into 2016. Similarly, the $9,000 allowable in 2016 (plus any carried-forward amount from 2015) reduces the 2016 tax liability, with any excess credit, from either year, being carried forward into later years. If the adoption in Example 4 is foreign, the adoptive parent may claim all $12,000 in qualified adoption expenses ($3,000 paid in 2014, $4,000 paid in 2015, and $5,000 in 2016) on the adoptive parent's 2016 tax return, because 2016 is the year when the adoption becomes final.

If the adoptive parent pays an additional $2,000 in qualified adoption expenses in 2017, then that $2,000 is allowable in 2018 (subject to the 2017 MAGI and dollar limitations), whether the adoption is domestic or foreign.

Adoption of U.S. children that a state has determined to have special needs

If you adopt a U.S. child that a state has determined to have special needs, you're generally eligible for the maximum amount of credit in the year of finality. Thus, if the adoption of a child whom a state has determined has special needs becomes final in 2016, the maximum credit allowable generally would be $13,460. However, the maximum amount will be reduced by any qualified adoption expenses you claimed for the same child in a prior year or years, and the MAGI limitation may apply.

If you adopt a child whom a state has determined has special needs, and if your employer has a written qualified adoption assistance program, you may be eligible for the exclusion, even if you or your employer didn't pay any qualified adoption expenses.

A child has special needs for purpose of the adoption expenses if:

1. The child is a citizen or resident of the United States or its possessions when the adoption effort began;
2. A state determines that the child can't or shouldn't be returned to his or her parent's home; and
3. The state determines that the child probably won't be adoptable without assistance provided to the adoptive family.

Don't confuse "children with special needs" for purposes of the adoption credit with the definitions of "children with special needs" for other purposes. Foreign children aren't considered to have special needs for purposes of the adoption credit. Even U.S. children who have disabilities may not have special needs for purposes of the adoption credit. Generally, "special needs adoptions" are the adoptions of children whom the state's child welfare agency considers difficult to place for adoption.

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