SECTION 3. INTERIM GUIDANCE

1. Amounts Carried Over from Earlier Taxable Years to a Taxable Year Beginning in 2010

An amount of an adoption credit claimed in an earlier taxable year that a taxpayer carries forward to a taxable year beginning in 2010 is allowable as a refundable tax credit. An amount that a taxpayer carries forward to a taxable year beginning in 2010 is not subject to an income limitation in that taxable year.

The following examples illustrate these rules.

Example 1 . (i) In 2008, Taxpayer pays $2,000 of QAE to adopt an eligible child who is a citizen of the United States. In 2009, Taxpayer pays an additional $8,000 of QAE and the adoption becomes final. The adoption credit for $10,000 of QAE is allowable in 2009. (ii) Taxpayer’s tax liability for taxable year 2009 is $6,000, and Taxpayer applies $6,000 of the $10,000 credit against Taxpayer’s 2009 tax liability. Taxpayer carries forward $4,000 of the credit to 2010.

(iii) In 2010, Taxpayer’s tax liability is $3,000. Taxpayer applies $3,000 of the $4,000 carried forward adoption credit against Taxpayer’s 2010 tax liability. Taxpayer is entitled to a refund of the remaining credit.

Example 2 . (i) The facts are the same as in Ex- ample 1, except that in 2010, Taxpayer pays an additional $2,000 of QAE. Taxpayer’s income exceeds the upper income limitation for 2010.

(ii) Because of the income limitation, the adoption credit is not allowable for the $2,000 of QAE Taxpayer pays in 2010. However, Taxpayer may apply the $4,000 adoption credit carried forward to reduce Taxpayer’s tax liability for 2010 and may receive a refund of any carried forward credit that exceeds Taxpayer’s tax liability.

2. Substantiation Requirements

A taxpayer must provide a copy (unless otherwise specified) of the applicable documents described in paragraph a. or b. below to substantiate the taxpayer’s adoption or attempted adoption of an eligible child. A taxpayer also must comply with paragraph c. below for a special needs adoption. The taxpayer attaches the document(s) to the taxpayer’s income tax return for the taxable year that the taxpayer

October 18, 2010 437 2010–42 I.R.B.

claims the credit, beginning after December 31, 2009.

a. Domestic and foreign adoptions that have been finalized

(1) For a domestic or foreign adoption finalized in the United States, an adoption order or decree.

(2) For a foreign adoption governed by the Hague Convention and finalized in another country:

A. A Hague Adoption Certificate (Immigrating Child),

B. An IH–3 visa, or C. A foreign adoption decree, translated into English.

(3) For a foreign adoption from a country that is not party to the Hague Convention:

A. A foreign adoption decree, translated into English, or

B. An IR–2 or IR–3 visa.

b. Domestic adoptions that are not final

(1) An adoption taxpayer identification number, obtained by the taxpayer for the child, included on the taxpayer’s income tax return (instead of attaching a document),

(2) A home study completed by an authorized placement agency,

(3) A placement agreement with an authorized placement agency,

(4) A document signed by a hospital official authorizing the release of a newborn child from the hospital to the taxpayer for legal adoption,

(5) A court document ordering or approving the placement of a child with the taxpayer for legal adoption, or

(6) An original affidavit or notarized statement signed under penalties of perjury from an adoption attorney, government official, or other person, stating that the signor:

A. Placed or is placing a child with the taxpayer for legal adoption, or

B. Is facilitating the adoption process for the taxpayer in an official capacity, summarizing the facilitation.

c. Adoptions of special needs children

In addition to the documentation required under paragraph 2.a. of this notice, a taxpayer claiming the adoption credit

for a child with special needs must attach a copy of the state determination of special needs to the taxpayer’s income tax return for the taxable year that the taxpayer claims the adoption credit for a child with special needs.

d. Information to be included in documentation

An order or decree must include information that establishes that the taxpayer’s adoption of the eligible child has been finalized and the date finalized, and a special needs determination must include information that establishes that the state has made a determination of special needs for the eligible child. A taxpayer may redact sensitive personal information from an adoption order or decree or a special needs determination. However, the Internal Revenue Service may require the taxpayer to provide an unredacted copy of the document if needed to substantiate the claim for the credit.