IRS Needs Clearer Plan for Adoption Tax Credit Education, GAO Reports

The U.S. Government Accountability Office (GAO) has found that the Internal Revenue Service (IRS) lacks a comprehensive educational outreach plan for the adoption tax credit, leading to potential confusion and missed benefits for taxpayers. While the IRS has developed materials concerning the credit, these are not consistently shared with crucial adoption stakeholders, such as state agencies, who could assist adoptive families. Furthermore, some existing IRS materials contain unclear or inconsistent messages regarding the accurate claiming of the credit, and the agency’s list of required documentation is not readily accessible. This situation could result in taxpayers being unaware of their eligibility, incorrectly claiming the credit, or being unprepared for audits.

The GAO’s findings highlight a continued need for improvement in the IRS’s communication strategies for the adoption tax credit. A previous GAO report in 2011 had recommended that the IRS engage relevant adoption stakeholders and clarify documentation requirements, noting that a high percentage of returns claiming the credit were audited. In response to these recommendations in 2012, the IRS did implement some measures to enhance its communication strategy. However, the agency has not yet established a robust, all-encompassing educational outreach plan designed to effectively connect with adoption stakeholders and deliver clear, consistent information to taxpayers.

The report also examined the audit rates and outcomes for adoption tax credit claims. For tax years between 2012 and 2021, the GAO observed that returns claiming the adoption credit were audited at a rate generally comparable to all individual tax returns. However, among the adoption credits that were audited during this period, 41 percent resulted in adjustments by the IRS. The average increase to the claimed credit was approximately $6,000, while the average decrease was around $7,000. The IRS officials were reportedly unable to provide a clear explanation for these audit adjustments.

The development of a structured educational outreach plan is seen as critical for the IRS to ensure that adoptive families are fully informed about the adoption tax credit, their eligibility criteria, and other pertinent requirements. This is especially relevant given recent changes to the credit enacted in July 2025. Enhanced education and clearer guidance, coupled with increased engagement with key stakeholders like the Administration for Children and Families within the Department of Health and Human Services, could significantly help taxpayers avoid potential financial missteps, such as failing to claim the credit they are entitled to or claiming it improperly. Such improved understanding of the credit could also lead to efficiencies for the IRS by potentially reducing the need for resource-intensive audits.

The GAO’s study was prompted by the significant number of children adopted annually in the United States, with over half of these adoptions occurring through the public foster care system. Adopting a child can incur substantial expenses, often amounting to thousands of dollars. The adoption tax credit, established in 1996, aims to encourage adoptions by helping to offset these costs. The review examined the IRS’s efforts to educate individuals about the availability and requirements of the credit and analyzed the frequency and results of audits conducted on these claims from tax years 2012 through 2021.

In its report, the GAO recommended that the IRS create a comprehensive educational outreach plan specifically for the adoption tax credit. This plan should include the identification of key stakeholders and the development of clear, consistent messaging to disseminate to taxpayers and relevant organizations. The IRS has concurred with this recommendation.

Article by Mel Anara, based upon information from the U.S. Government Accountability Office

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