Fairness for Adopting Families Act

Summary: Fairness for Adopting Families Act - Amends the Internal Revenue Code to allow a credit for adoption expenses.  Excludes from gross income amounts paid or expenses incurred by the employer for adoption, if furnished pursuant to an adoption assistance program.  Imposes both dollar and income limits on both the credit and the exclusion.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Fairness for Adopting Families 
Act''.

SEC. 2. CREDIT FOR ADOPTION EXPENSES.

    (a) In General.--Subpart A of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to nonrefundable 
personal credits) is amended by inserting after section 22 the 
following new section:

``SEC. 23. ADOPTION EXPENSES.

    ``(a) Allowance of Credit.--In the case of an individual, there 
shall be allowed as a credit against the tax imposed by this subtitle 
for the taxable year the amount of the qualified adoption expenses paid 
or incurred by the taxpayer during such taxable year.
    ``(b) Limitations.--
            ``(1) Dollar limitation.--The aggregate amount of qualified 
        adoption expenses which may be taken into account under 
        subsection (a) with respect to the adoption of a child shall 
        not exceed $5,000.
            ``(2) Income limitation.--The amount allowable as a credit 
        under subsection (a) for any taxable year shall be reduced (but 
        not below zero) by an amount which bears the same ratio to the 
        amount so allowable (determined without regard to this 
        paragraph but with regard to paragraph (1)) as--
                    ``(A) the amount (if any) by which the taxpayer's 
                taxable income exceeds $60,000, bears to
                    ``(B) $40,000.
            ``(3) Denial of double benefit.--
                    ``(A) In general.--No credit shall be allowed under 
                subsection (a) for any expense for which a deduction or 
                credit is allowable under any other provision of this 
                chapter.
                    ``(B) Grants.--No credit shall be allowed under 
                subsection (a) for any expense to the extent that funds 
                for such expense are received under any Federal, State, 
                or local program.
                    ``(C) Reimbursement.--No credit shall be allowed 
                under subsection (a) for any expense to the extent that 
                such expense is reimbursed and the reimbursement is 
                excluded from gross income under section 137.
    ``(c) Carryforwards of Unused Credit.--If the credit allowable 
under subsection (a) for any taxable year exceeds the limitation 
imposed by section 26(a) for such taxable year reduced by the sum of 
the credits allowable under this subpart (other than this section), 
such excess shall be carried to the succeeding taxable year and added 
to the credit allowable under subsection (a) for such taxable year. No 
credit may be carried forward under this subsection to any taxable year 
following the fifth taxable year after the taxable year in which the 
credit arose.
    ``(d) Qualified Adoption Expenses.--For purposes of this section, 
the term `qualified adoption expenses' means reasonable and necessary 
adoption fees, court costs, attorney fees, and other expenses which are 
directly related to the legal and finalized adoption of a child by the 
taxpayer and which are not incurred in violation of State or Federal 
law or in carrying out any surrogate parenting arrangement. The term 
`qualified adoption expenses' shall not include any expenses in 
connection with the adoption by an individual of a child who is the 
child of such individual's spouse.
    ``(e) Married Couples Must File Joint Returns.--Rules similar to 
the rules of paragraphs (2), (3), and (4) of section 21(e) shall apply 
for purposes of this section.''
    (b) Conforming Amendment.--The table of sections for subpart A of 
part IV of subchapter A of chapter 1 of the Internal Revenue Code of 
1986 is amended by inserting after the item relating to section 22 the 
following new item:

                              ``Sec. 23. Adoption expenses.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1995.
SEC. 3. EXCLUSION OF AMOUNTS RECEIVED UNDER EMPLOYER'S ADOPTION 
              ASSISTANCE PROGRAMS.

    (a) In General.--Part III of subchapter B of chapter 1 of such Code 
(relating to items specifically excluded from gross income) is amended 
by redesignating section 137 as section 138 and by inserting after 
section 136 the following new section:

``SEC. 137. ADOPTION ASSISTANCE PROGRAMS.

    ``(a) In General.--Gross income of an employee does not include 
amounts paid or expenses incurred by the employer for qualified 
adoption expenses in connection with the adoption of a child by an 
employee if such amounts are furnished pursuant to an adoption 
assistance program.
    ``(b) Limitations.--
            ``(1) Dollar limitation.--The aggregate amount excludable 
        from gross income under subsection (a) for all taxable years 
        with respect to the legal adoption of any single child by the 
        taxpayer shall not exceed $5,000.
            ``(2) Income limitation.--The amount excludable from gross 
        income under subsection (a) for any taxable year shall be 
        reduced (but not below zero) by an amount which bears the same 
        ratio to the amount so excludable (determined without regard to 
        this paragraph but with regard to paragraph (1)) as--
                    ``(A) the amount (if any) by which the taxpayer's 
                taxable income (determined without regard to this 
                section) exceeds $60,000, bears to
                    ``(B) $40,000.
    ``(c) Adoption Assistance Program.--For purposes of this section, 
an adoption assistance program is a plan of an employer--
            ``(1) under which the employer provides employees with 
        adoption assistance, and
            ``(2) which meets requirements similar to the requirements 
        of paragraphs (2), (3), and (5) of section 127(b).
An adoption reimbursement program operated under section 1052 of title 
10, United States Code (relating to armed forces) or section 514 of 
title 14, United States Code (relating to members of the Coast Guard) 
shall be treated as an adoption assistance program for purposes of this 
section.
    ``(d) Qualified Adoption Expenses.--For purposes of this section, 
the term `qualified adoption expenses' has the meaning given such term 
by section 23(d).''.
    (b) Clerical Amendment.--The table of sections for such part III is 
amended by striking the item relating to section 137 and inserting the 
following:

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