SECTION 2. BACKGROUND

.01 Section 23 allows a taxpayer to claim a credit for qualified adoption expenses (QAE) for the adoption of an eligible child. Section 10909 of the Patient Protection and Affordable

Care Act, Pub. L. 111–148, 124 Stat. 119, redesignated § 23 as § 36C and made the credit refundable for taxable years beginning in 2010 and 2011. For convenience, references to § 23 in this revenue procedure, in general, also apply to § 36C.

.02 Section 137 allows an employee to exclude from gross income QAE reimbursed under an employer-provided adoption assistance program.

.03 Section 23(d)(1) and Notice 97–9, 1997–1 C.B. 365, define QAE as reasonable and necessary adoption fees, court costs, attorney’s fees, traveling expenses (including amounts expended for meals and lodging) while away from home, and other expenses directly related to, and for the principal purpose of, the legal adoption of an eligible child by the taxpayer.

.04 Section 23(d)(2) provides that an eligible child is an individual who has not attained age 18 or who is physically or mentally incapable of caring for himself. Under § 23(d)(1)(C), a stepchild is not an eligible child.

.05 Section 23(a) provides the general rule governing when the credit for QAE is allowed. If the adoption is not final in the taxable year a taxpayer pays or incurs QAE, the credit is allowable for those expenses in the next taxable year. Section 23(a)(2)(A). For QAE paid or incurred during or after the taxable year in which the adoption is final, the credit is allowable in the taxable year in which the QAE are paid or incurred. Section 23(a)(2)(B).

.06 Section 23(e) provides special rules governing when the credit for foreign adoptions is allowed: (1) the credit is allowable only if the adoption becomes final; and (2) QAE paid or incurred in any taxable year before the taxable year in which the adoption becomes final are treated as paid or incurred in the taxable year in which the adoption becomes final. Rules similar to § 23(e) apply under § 137(e) for purposes of the exclusion for employer-provided adoption assistance.

.07 For purposes of this revenue procedure, a Convention adoption means the adoption, on or after the Convention effective date, of an alien child habitually resident in a Convention country by a United States citizen habitually resident in the United States, when in connection with the adoption the child has moved, or will move, from the Convention country to

October 4, 2010 413 2010–40 I.R.B.

file an amended return to claim the adoption credit for QAE paid in taxable year 2008 or 2009, if the period of limitation under § 6511 has not expired, for a Convention adoption that became final within the meaning of section 4 of this revenue procedure during the period beginning on April 1, 2008, and ending on December 31, 2009.

DRAFTING AND OTHER INFORMATION

The principal author of this revenue procedure is Marilyn E. Brookens of the Office of Associate Chief Counsel (Income Tax & Accounting). For further information regarding this announcement, contact Ms. Brookens at (202) 622–4920 (not a toll-free call).

cessed through the Department of State website at http://www.adoption.state.gov .