Adoption Incentives Act of 1995

Summary: Adoption Incentives Act of 1995 - Amends the Internal Revenue Code to exclude from gross income:  (1) employee and military adoption assistance benefits; and (2) a withdrawal from an individual retirement account for qualified adoption expenses to the extent that such amount exceeds the sum of such benefits plus any credit allowable with respect to such expenses, as long as such amount does not exceed such expenses.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Adoption Incentives Act of 1995''.

SEC. 2. EXCLUSION OF ADOPTION ASSISTANCE.

    (a) In General.--Part III of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 is amended by redesignating section 137 
as section 138 and by inserting after section 136 the following new 
section:

``SEC. 137. ADOPTION ASSISTANCE.

    ``(a) In General.--Gross income of an employee does not include 
employee adoption assistance benefits, or military adoption assistance 
benefits, received by the employee with respect to the employee's 
adoption of a child.
    ``(b) Definitions.--For purposes of this section--
            ``(1) Employee adoption assistance benefits.--The term 
        `employee adoption assistance benefits' means payment by an 
        employer of qualified adoption expenses with respect to an 
        employee's adoption of a child, or reimbursement by the 
        employer of such qualified adoption expenses paid or incurred 
        by the employee in the taxable year.
            ``(2) Employer and employee.--The terms `employer' and 
        `employee' have the respective meanings given such terms by 
        section 127(c).
            ``(3) Military adoption assistance benefits.--The term 
        `military adoption assistance benefits' means benefits provided 
        under section 1052 of title 10, United States Code, or section 
        514 of title 14, United States Code.
            ``(4) Qualified adoption expenses.--
                    ``(A) In general.--The term `qualified adoption 
                expenses' means reasonable and necessary adoption fees, 
                court costs, attorney fees, and other expenses--
                            ``(i) which are directly related to, and 
                        the principal purpose of which is for, the 
                        legal adoption of an eligible child by the 
                        taxpayer, and
                            ``(ii) which are not incurred in violation 
                        of State or Federal law or in carrying out any 
                        surrogate parenting arrangement.
                    ``(B) Eligible child.--The term `eligible child' 
                means any individual--
                            ``(i) who has not attained age 18 as of the 
                        time of the adoption, or
                            ``(ii) who is physically or mentally 
                        incapable of caring for himself.
    ``(c) Coordination With Other Provisions.--The Secretary shall 
issue regulations to coordinate the application of this section with 
the application of any other provision of this title which allows a 
credit or deduction with respect to qualified adoption expenses.''
    (b) Clerical Amendment.--The table of sections for part III of 
subchapter B of chapter 1 of such Code is amended by striking the item 
relating to section 137 and inserting the following new items:

                              ``Sec. 137. Adoption assistance.
                              ``Sec. 138. Cross references to other 
                                        Acts.''
    (c) Effective Date.--The amendments made this section shall apply 
to taxable years beginning after December 31, 1995.

SEC. 3. WITHDRAWAL FROM IRA FOR ADOPTION EXPENSES.

  (a) In General.--Subsection (d) of section 408 of the Internal 
Revenue Code of 1986 is amended by adding at the end the following new 
paragraph:
            ``(8) Qualified adoption expenses.--
                    ``(A) In general.--Any amount which is paid or 
                distributed out of an individual retirement plan of the 
                taxpayer, and which would (but for this paragraph) be 
                includible in gross income, shall be excluded from 
                gross income to the extent that--
                            ``(i) such amount exceeds the sum of--
                                    ``(I) the amount excludable under 
                                section 137, and
                                    ``(II) any amount allowable as a 
                                credit under this title with respect to 
                                qualified adoption expenses; and
                            ``(ii) such amount does not exceed the 
                        qualified adoption expenses paid or incurred by 
                        the taxpayer during the taxable year.
                    ``(B) Qualified adoption expenses.--For purposes of 
                this paragraph, the term `qualified adoption expenses' 
                has the meaning given such term by section 137, except 
                that such term shall not include any expense in 
                connection with the adoption by an individual of a 
                child who is the child of such individual's spouse.''
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1995.