Joint Committee on Taxation

June 3, 2002

JCX-46-02

DESCRIPTION OF H.R. 4800, THE REPEAL OF THE

SUNSET PROVISION FOR THE EXPANSION OF THE ADOPTION CREDIT

AND THE EXCLUSION FOR ADOPTION ASSISTANCE

Present Law

Tax credit

A maximum nonrefundable credit of $10,000 per eligible child is allowed for qualified 

adoption expenses paid or incurred by the taxpayer. An eligible child is an individual (1) who 

has not attained age 18 or (2) who is physically or mentally incapable of caring for him or 

herself.

Qualified adoption expenses are reasonable and necessary adoption fees, court costs, 

attorneys' fees, and other expenses that are directly related to the legal adoption of an eligible 

child. All reasonable and necessary expenses required by a State as a condition of adoption are 

qualified adoption expenses. Generally, a taxpayer is not eligible for the adoption credit in the 

year that qualified adoption expenses are paid or incurred by the taxpayer, but rather, in the next 

taxable year. An exception is provided for qualified adoption expenses paid or incurred in the 

year the adoption becomes final.

In the case of a special needs child, the adoption expenses taken into account are 

increased by the excess, if any, of $10,000 over actual qualified adoption expenses otherwise 

taken into account for that special needs child. This provision is effective for taxable years 

beginning after December 31, 2002. A special needs child is an eligible child who also meets 

other requirements. Specifically, a special needs child must be a citizen or resident of the United 

States which the State has determined: (1) cannot or should not be returned to the home of the 

birth parents, and (2) has a specific factor or condition because of which the child cannot be 

placed with adoptive parents without adoption assistance.

Exclusion from income

Present law provides a maximum $10,000 exclusion from the gross income of an 

employee for qualified adoption expenses (as defined above) paid by the employer. The $10,000 

limit is a per-child limit, not an annual limitation. In the case of a special needs adoption, the 

amount of adoption expenses taken into account in determining the exclusion for employerprovided adoption assistance is increased by the excess, if any, of $10,000 over the amount of 

the aggregate adoption expenses otherwise taken into account for that special needs child. This 

provision is effective for taxable years beginning after December 31, 2002.
2

Sunset provision

The Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”) made a 

number of changes to the Federal tax laws, including expansion of the adoption credit and the 

exclusion for adoption assistance. However, in order to comply with reconciliation procedures 

under the Congressional Budget Act of 1974 (e.g., section 313 of the Budget Act, under which a 

point of order may be lodged in the Senate), EGTRRA included a “sunset” provision, pursuant to 

which the provisions of EGTRRA expire at the end of 2010. Specifically, EGTRRA’s 

provisions do not apply for taxable, plan, or limitation years beginning after December 31, 2010, 

or to estates of decedents dying after, or gifts or generation-skipping transfers made after, 

December 31, 2010. EGTRRA provides that, as of the effective date of the sunset, both the 

Code and the Employee Retirement Income Security Act of 1974 (“ERISA”) will be applied as 

though EGTRRA had never been enacted. Likewise, all other provisions of the Code and 

ERISA will be applied as though the relevant provisions of EGTRRA had never been enacted. 

Explanation of Provision

H.R. 4800 repeals the sunset provision of EGTRRA solely for purposes of the expansion 

of the adoption credit and the exclusion of adoption assistance.

Effective Date

The provision is effective on the date of its enactment.