U.S. Senators Tim Johnson (D-SD), James Inhofe (R-OK), Heidi Heitkamp (D-ND), and Lisa Murkowski (R-AK) introduced the Tribal Adoption Parity Act on July 9. The legislation ensures parents adopting American Indian and Alaskan Native children through tribal courts are treated fairly under our nation’s tax code by making it easier for adoptive parents across Indian country to claim the full adoption tax credit for “special needs” children.
“The Tribal Adoption Parity Act will provide financial relief for families in South Dakota by making it easier for adoptive parents in Indian country to claim the full adoption tax credit,” Johnson said. “It is unacceptable that parents who adopt an Indian child through a tribal court are prevented from accessing the financial relief that is provided to adoptive families in non-tribal areas. This bill addresses an oversight in our tax code by ensuring that adoptive parents throughout Indian country receive fair tax treatment.”
Under current law, parents adopting a child who has been determined by a State as “special needs” can claim the full adoption tax credit regardless of their qualified adoption expenses. Congress created the “special needs” determination to provide an added incentive for parents adopting children who might otherwise be difficult to place in adoptive homes. In Fiscal Year 2011, 84 percent of the nearly 50,000 children adopted through public agencies were designated as having “special needs.” Parents adopting children through tribal courts, however, are currently ineligible for the special needs adoption tax credit. This unfortunately results in parents and children throughout Indian country unfairly missing out on an important tax credit that would make a significant difference in their day-to-day lives. Becoming eligible for the special needs adoption tax credit would help further reduce the financial costs associated with adoption and lessen administrative burdens.
In 1978, Congress passed the Indian Child Welfare Act that gives Indian tribes exclusive jurisdiction over custody proceedings involving Indian children within a reservation. The special needs adoption tax credit currently fails to recognize the authority that tribal governments have over adoption proceedings of Indian children. The Tribal Adoption Parity Act would amend the Internal Revenue Code to provide fair tax treatment to parents adopting Indian children through tribal courts. As a result, a tribal government would be permitted to designate an adoptive Indian child as having “special needs.” This legislation would ensure that families in Indian country are treated fairly by providing the same financial relief that adoptive families currently receive across the nation.
The bill has been endorsed by organizations such as the National Indian Child Welfare Association, the Child Welfare League of America, Voice for Adoption, the American Academy of Adoption Attorneys, the Donaldson Adoption Institute, and the Joint Council for International Children’s Services.
In 1996, Congress created the adoption tax credit to ease the initial financial burden for adoptive parents. The adoption tax credit provides a tax credit of up to $10,000 and is adjusted for inflation. The credit was $12,970 for tax year 2013. Since 2003, families adopting children with “special needs” are allowed to claim the full adoption tax credit regardless of their qualified adoption expenses. The definition of “special needs” varies from state to state. Examples of factors that can qualify a child for the “special needs” determination include: age; membership in a minority or sibling group; ethnic background; medical condition; or physical, mental, and emotional handicaps.
The National Taxpayer Advocate Service, an independent organization within the Internal Revenue Service, recommended the adoption tax credit be amended to recognize tribal governments in its 2012 Annual Report to Congress, which can be accessed here.