Missouri families adopting a child on or after January 1, 2022, regardless of whether the child is a special needs child may be eligible to receive a Missouri Adoption Tax Credit for nonrecurring adoption expenses. These expenses can be claimed up to $10,000 if the adopting parent(s) has not been reimbursed by federal, state or local resources (sections 135.325 – 135.339, RSMo) or the expenses incurred by the family exceed those reimbursed by federal, state or local resources. The following material instructs staff in cooperating with the Missouri Department of Revenue in determining if a family may claim the tax credit.
Individuals and business entities may claim a tax credit for their total nonrecurring adoption expenses in each year that the expenses are incurred. A claim for fifty percent of the credit shall be allowed when the child is placed in the home. A claim for the remaining fifty percent shall be allowed when the adoption is final. The total of these tax credits shall not exceed the maximum limit of ten thousand dollars per child.
The cumulative amount of tax credits that may be claimed by taxpayers claiming the credit for nonrecurring adoption expenses in any one fiscal year prior to July 1, 2004 shall not be more than two million dollars, but may be increased by appropriation in any fiscal year beginning on or after July 1, 2004, and ending on or before June 30, 2021. The cumulative amount of tax credits that may be claimed by taxpayers claiming the credit for nonrecurring adoption expenses shall not exceed six million dollars in any fiscal year beginning on or after July 1, 2021.
Statutory Requirements
This tax relief law became effective January 1, 1988, (last revised August 28, 2021), and sets forth the following requirements:
- Definitions:
- Nonrecurring adoption expenses – Reasonable and necessary adoption fees, court costs, attorney fees, and other expenses which are directly related to the legal adoption of a special needs child and which are not incurred in violation of federal, state, or local laws.
- Children who have been adopted, regardless of whether the child adopted is a resident or ward of a resident of this state at the time the adoption is initiated; however, priority will be given to applications to claim the tax credit for special needs children who are residents or war wards of residents of this state at the time the adoption is initiated.
- Children who are residents or wards of a resident of this state at the time the adoption is initiated. The child must reside in Missouri or be under the custody of a resident of Missouri at the time the adoption is initiated in order to qualify for a portion of the $2 million of the available tax credit. Internationally adopted and children adopted from another state do not meet this criterion, because they are not residents of this state at the time their adoption is initiated, regardless of where their adoption is finalized. If internationally adopted, or children adopted from another state meet special needs criteria they could qualify for a portion of the remaining $2 million in tax credits allowed by the statute.
- Disability- A mental, physical, or emotional impairment that limits one or more major life activity, whether the impairment is congenital or acquired by accident, injury or disease, and is verified by medical findings.
- Special needs child – A child who meets the following criteria:
- Has a specific factor or condition such as age, membership in a sibling group, medical condition, or disability about which it is reasonable to conclude that the child cannot be easily placed for adoption;
- Except where it would be against the best interest of the child because of significant emotional ties with the prospective adoptive parent(s) while in their care as a foster child, a reasonable, but unsuccessful effort has been made to place the child; and
The Children’s Division, a child-placing agency, or the juvenile court has determined that the child cannot be returned to the parents.
- Limitations – Adoptive parent(s) may not claim a tax credit if:
- The nonrecurring adoption expenses were paid through funds received under a federal, state, or local program and their expenses did not exceed what was covered by those programs;
- The child is over age 18 at the time of adoption unless the child has a condition which limits his ability to live independently; or
- For any amount of the tax credit carried forward (for up to five (5) years as allowed in section 135.333, RSMo) if the juvenile court temporarily or finally relieves the adoptive parent(s) of custody of the child.
- In administering this law, the Children’s Division is responsible for the following activities:
- Certifying a child’s eligibility as a special needs child when the child was placed by the Division or into a Division adoptive home;
- Certifying for all special needs adoptions that nonrecurring adoption expenses were not reimbursed by federal, state or local funds or the expenses incurred by the family exceed those reimbursed by federal, state or local resources;
- Completing the appropriate parts (Part D – Certification that Nonrecurring expenses will not be Reimbursed and Part E – Verification of “Special Needs Child”) of the Missouri Department of Revenue Adoption Tax Credit Claim (Form ATC) when presented by the adoptive parent(s); and
- Develop an Adoption Tax Credit File for each tax year. This file is to be maintained by a designated staff person in each county/circuit office. This file is to be entitled, Adoption Tax Credit FY”. A copy of the ATC Log is to be attached to the front, inside cover of the file. All signed ATC forms are to be logged onto this form, including forms that were submitted for children who have been in the custody of the Children’s Division.
Procedural Requirements
The adoptive parent must have, with the exception of Part D and Part E, the entire ATC form completed prior to the Children’s Division providing assurances and signatures.
Procedures for a child in Children’s Division custody at the time of adoptive placement when the adoptive family chooses to receive the Adoption Tax Credit and chooses not to receive services through the Missouri Adoption Subsidy Program, or their nonrecurring expenses exceeded what was provided through subsidy. If their expenses did exceed what was provided in the subsidy, they can claim the amount that was in excess of what subsidy covered:
- Determine that the child meets all the special needs eligibility.
- Complete Part E of the ATC form if the child meets all the eligibility criteria. If the child does not meet the criteria, confirm this in writing and allow the adoptive parent(s) to provide additional information
- Review the expenses listed in Part C by the adoptive parent(s) to determine if any of these were paid through the Missouri Adoption Subsidy Program or any other source other than the adoptive parent(s). CD workers shall utilize the steps outlined in letter C under Children’s Division responsibilities. If it is determined that some of the expenses were paid by one of the sources listed above, the adoptive parent(s) must adjust the expenses accordingly before the worker completes Part D. If the adoptive parent refuses to adjust the expenses, the worker need not complete the form and shall document, in writing to the adoptive parent, why the form was not completed. A copy of this documentation should be kept with the form by the worker, in the corresponding year’s ATC file. NOTE: Adoption subsidy funds are federal and state funds. Local funds used to offset nonrecurring expenses could include local government or private sources. Staff should explore with the adoptive family or the appropriate agency, if applicable, whether any local funds were used to offset the nonrecurring adoption expenses. Staff will need to review the Payment History screens in FACES to determine if the Children’s Division previously paid any claimed funds through an Adoption Subsidy Agreement.
- Complete Part D if there are nonrecurring adoption expenses which are eligible for the tax credit.
Return:
- The completed form ATC to the adoptive parent(s); or
The incomplete form ATC to the adoptive parent(s) with a written explanation of why the Children’s Division cannot certify the child’s special needs eligibility and/or that no federal, state or local funds were used to pay the claimed nonrecurring adoption expenses.
- File a copy of form ATC with all supporting material and correspondence in the adoptive parent(s) case record.
- Log this ATC form and the required information on the ATC Log, located in the front inside cover of the corresponding year’s Adoption Tax Credit File.
Procedures for a child who was not in Children’s Division’s custody at the time of adoptive placement:
- Refer the adoptive parent(s) to the juvenile court for children independently placed for assistance in determining the child’s special needs eligibility (Part E of the ATC form); or
- The adoptive parent(s) to the appropriate licensed child-placing agency, Division of Youth Services (DYS) or Department of Mental Health (DMH) for assistance in determining the child’s special needs eligibility (Part E of the ATC form);
NOTE: If the licensed child-placing agency, or the court, which finalized the adoption, is not locally accessible to the family, it is not necessary to refer the adoptive family to one of these services. The Division may complete Part E of the ATC form if the child meets the special needs eligibility criteria in order to save the family from tracking down the agency or court. The family should provide some form of documentation supporting this such as medical documentation, the child’s birth certificate, the foreign adoption decree or papers from immigration.
- Review the expenses listed in Part C by the adoptive parent(s) to determine if any of these were paid through the Missouri Adoption Subsidy Program or any other source other than the adoptive parent(s). If it is determined that some of the expenses were paid by one of the sources listed above, the adoptive parent(s) must adjust the expenses accordingly before the worker completes Part D. If the adoptive parent refuses to adjust the expenses, the worker need not complete the form and shall document, in writing to the adoptive parent, why the form was not completed. A copy of this documentation should be kept with the form by the worker, in the corresponding year’s ATC file.
NOTE: Workers will need to review the Payment History screens in FACES to determine if the Children’s Division previously made payment through an Adoption Subsidy Agreement, particularly for children previously in the custody of a licensed child-placing agency, DYS or DMH.
- Complete Part D of the ATC form to certify that no federal, state or local funds were expended to meet the nonrecurring adoption expenses listed in Part C.
- Make a copy of form ATC and retain for five (5) years with related correspondence in a file for “Adoption Tax Credit FY” requests.
- Log this ATC form and required information on the ATC Log, located in the front inside cover of the corresponding year’s Adoption Tax Credit File.
- Return:
- The completed form ATC to the adoptive parent(s); or
- The incomplete form ATC to the adoptive parent(s) with a written explanation of why the Children’s Division cannot certify the child’s eligibility and/or that no federal, state or local funds were used to pay for nonrecurring adoption expenses.
- Retain individual case information for five (5) years from the date of certification in the “Adoption Tax Credit FY” file. Destroy forms after five (5) years.
Related Practice Alerts and Memos:
7-1-19 – CD19-52 – FY20 Rate Increases
12-4-19 – PA19-AD-06 – Transitional Living Placements and Subsidy Agreements
1-10-20 – PA20-AD-01 – Legal Fees for AD and LG Subsidies
10-29-2020 – PA20-AD-06 – Child Summary
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