rp-10-31.pdf

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Part III - Administrative, Procedural, and Miscellaneous

26 CFR 601.105: Examination of returns and claims for refund, credit, or abatement;
determination of correct tax liability.
(Also Part 1, §§ 23, 137.)

Rev. Proc. 2010-31

SECTION 1. PURPOSE

This revenue procedure provides safe harbors for determining the finality of foreign
adoptions for purposes of the adoption credit under § 23 of the Internal Revenue Code,
redesignated § 36C after 2009, and the exclusion for employer reimbursements under
§ 137. A taxpayer within the scope of this revenue procedure who meets the
requirements of a safe harbor described in section 4 may rely on that safe harbor to
determine when a foreign adoption of an eligible child is final.
Rev. Proc. 2005-31, 2005-1 C.B. 1374, provides guidance to taxpayers on the
finality of foreign adoptions but does not apply to adoptions governed by the Hague
Convention on Protection of Children and Co-operation in Respect of Intercountry
Adoption (Convention) and subject to the Intercountry Adoption Act of 2000, Pub. L.
106-279, 114 Stat. 825 (IAA), 42 U.S.C. §§ 14901-14954 (Convention adoptions). The
Convention became effective in the United States on April 1, 2008. This revenue
procedure provides taxpayers with safe harbors for claiming the adoption credit and

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exclusion for Convention adoptions, and guidance on filing amended returns to claim
the credit or exclusion for Convention adoptions that became final in 2008 or 2009.
Rev. Proc. 2005-31 continues to apply to foreign adoptions not governed by the
Convention (non-Convention adoptions).
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,

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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 the United States. See 8 C.F.R. § 204.301; § 3(10) of the
IAA, 42 U.S.C. § 14902(10). See also Rev. Proc. 2005-31, section 2.05. An adoption
may be a Convention adoption only if a prospective adoptive parent has filed an
Application for Determination of Suitability to Adopt a Child from a Convention Country
(Form 1-800A or successor) with the Department of State on or after April 1, 2008.
See 8 C.F.R. §§ 204.300(a) and (b), and 301.
.08 A Convention country is a country that is party to the Convention and for which
the Convention is in force. See § 3(12) of the IAA, 42 U.S.C. § 14902(3)(12); 8 C.F.R
§ 204.301; and 22 C.F.R. § 96.2.

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.09 Section 301(a)(1) of the IAA, 42 U.S.C. § 14931(a)(1), requires the Secretary of
State to issue a certificate for each Convention adoption by a U.S. domiciled citizen of a
child immigrating to the United States. The Secretary of State issues two types of
certificates for Convention adoptions, IHAC (Hague Adoption Certificate) and IHCC
(Hague Custody Certificate). The Secretary of State issues the certificates if the
Secretary (1) receives appropriate notification from the central authority of the child’s
country of origin, and (2) has verified that the requirements of the Convention and the
IAA have been met for the adoption.
.10 Section 301(a)(2) of the IAA, 42 U.S.C. § 14931(a)(2), provides that if a
certificate (IHAC or IHCC) is appended to an original adoption decree, Federal and
state agencies, courts, and other public and private persons and entities must treat the
certificate as conclusive evidence of the facts certified.
.11 Section 301(b) of the IAA, 42 U.S.C. § 14931(b), provides that a final adoption in
another Convention country, certified by the Secretary of State pursuant to
§ 301(a) of the IAA (IHAC), must be recognized as a final valid adoption for purposes of
all Federal, state, and local laws of the United States.
.12 Section 301(c) of the IAA, 42 U.S.C. § 14931(c), provides that a home-state
jurisdiction may not declare an adoption final for a child who has entered the United
States from another Convention country unless the Secretary of State has issued an
IHCC.
.13 General information about foreign adoptions and the Convention can be
accessed through the Department of State website at http://www.adoption.state.gov
.
SECTION 3. SCOPE

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This revenue procedure applies to taxpayers who claim the adoption credit or
exclusion for QAE paid or incurred for a Convention adoption of a child who is not a
citizen or resident of the United States at the time the adoption process commences
and who is immigrating to the United States. This revenue procedure does not apply to
non-Convention adoptions within the scope of Rev. Proc. 2005-31 or to the adoption of
a child who is a citizen or resident of the United States at the time the adoption process
commences.
SECTION 4. FINALITY OF CONVENTION ADOPTIONS
.01 Adoption finalized in another Convention country
. If a taxpayer is within the
scope of this revenue procedure, the Internal Revenue Service will not challenge the
taxpayer’s treatment of an adoption that is finalized in another Convention country
(sending country) as final in the taxable year that either:
(1) The sending country enters a final decree of adoption, or
(2) The Secretary of State issues a certificate under § 301(a) of the IAA (IHAC).
.02 Adoption finalized in the United States
. If a taxpayer is within the scope of this
revenue procedure, the Service will not challenge the taxpayer’s treatment of an
adoption of a child who has entered the United States for the purpose of adoption
subject to § 301(c) of the IAA (IHCC) as final in the taxable year that a state court enters
a final decree of adoption.
SECTION 5. EFFECTIVE DATE
This revenue procedure is effective September 29, 2010. A taxpayer may 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

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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).