II

104TH CONGRESS

2D SESSION S. 1715

To amend the Internal Revenue Code of 1986 to provide a credit for adoption

expenses, to allow penalty-free IRA withdrawals for adoption expenses,

and to allow tax-free treatment for employer provided adoption

assistance.

IN THE SENATE OF THE UNITED STATES

APRIL 29, 1996

Mr. SPECTER (for himself, Mr. SANTORUM, Mr. JEFFORDS, Mr. LUGAR, Mr.

HARKIN, Mr. INOUYE, Mr. LEAHY, Mr. CAMPBELL, Mr. COCHRAN, Mr.

HATFIELD, Mr. STEVENS, and Mr. BOND) introduced the following bill;

which was read twice and referred to the Committee on Finance

A BILL

To amend the Internal Revenue Code of 1986 to provide

a credit for adoption expenses, to allow penalty-free IRA

withdrawals for adoption expenses, and to allow taxfree treatment for employer provided adoption assistance.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Adoption Promotion

5 Act of 1996’’.
2

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1 SEC. 2. CREDIT FOR ADOPTION EXPENSES.

2 (a) IN GENERAL.—Subpart A of part IV of sub3 chapter A of chapter 1 of the Internal Revenue Code of

4 1986 (relating to nonrefundable personal credits) is

5 amended by inserting after section 22 the following new

6 section:

7 ‘‘SEC. 23. ADOPTION EXPENSES.

8 ‘‘(a) ALLOWANCE OF CREDIT.—In the case of an in9 dividual, there shall be allowed as a credit against the tax

10 imposed by this chapter for the taxable year the amount

11 of the qualified adoption expenses paid or incurred by the

12 taxpayer with respect to the adoption of a child.

13 ‘‘(b) LIMITATIONS.—

14 ‘‘(1) DOLLAR LIMITATION.—The aggregate

15 amount of qualified adoption expenses which may be

16 taken into account under subsection (a) with respect

17 to the adoption of a child shall not exceed $5,000

18 ($7,500, in the case of a child with special needs).

19 ‘‘(2) INCOME LIMITATION.—The amount allow20 able as a credit under subsection (a) for any taxable

21 year shall be reduced (but not below zero) by an

22 amount which bears the same ratio to the amount

23 so allowable (determined without regard to this

24 paragraph but with regard to paragraph (1)) as—

25 ‘‘(A) the amount (if any) by which the tax26 payer’s adjusted gross income (determined
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•S 1715 IS

1 without regard to sections 911, 931, and 933)

2 exceeds $65,000, bears to

3 ‘‘(B) $30,000.

4 ‘‘(3) DENIAL OF DOUBLE BENEFIT.—

5 ‘‘(A) IN GENERAL.—No credit shall be al6 lowed under subsection (a) for any expense for

7 which a deduction or credit is allowable under

8 any other provision of this chapter.

9 ‘‘(B) GRANTS.—No credit shall be allowed

10 under subsection (a) for any expense to the ex11 tent that funds for such expense are received

12 under any Federal, State, or local program.

13 ‘‘(C) REIMBURSEMENT.—No credit shall

14 be allowed under subsection (a) for any expense

15 to the extent that such expense is reimbursed

16 and the reimbursement is excluded from gross

17 income under section 138.

18 ‘‘(c) CARRYFORWARDS OF UNUSED CREDIT.—If the

19 credit allowable under subsection (a) for any taxable year

20 exceeds the limitation imposed by section 26(a) for such

21 taxable year reduced by the sum of the credits allowable

22 under this subpart (other than this section), such excess

23 shall be carried to the succeeding taxable year and added

24 to the credit allowable under subsection (a) for such tax25 able year. No credit may be carried forward under this
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1 subsection to any taxable year following the fifth taxable

2 year after the taxable year in which the credit arose. For

3 purposes of the preceding sentence, credits shall be treated

4 as used on a first-in first-out basis.

5 ‘‘(d) DEFINITIONS.—For purposes of this section—

6 ‘‘(1) QUALIFIED ADOPTION EXPENSES.—The

7 term ‘qualified adoption expenses’ means—

8 ‘‘(A) reasonable and necessary adoption

9 fees, court costs, attorney fees, and other ex10 penses—

11 ‘‘(i) which are directly related to, and

12 the principal purpose of which is for, the

13 legal and finalized adoption of an eligible

14 child by the taxpayer, and

15 ‘‘(ii) which are not incurred in viola16 tion of State or Federal law or in carrying

17 out any surrogate parenting arrangement,

18 and

19 ‘‘(B) in the case of the adoption of a child

20 with special needs, any other expenses.

21 ‘‘(2) EXPENSES FOR ADOPTION OF SPOUSE’S

22 CHILD NOT ELIGIBLE.—The term ‘qualified adoption

23 expenses’ shall not include any expenses in connec24 tion with the adoption by an individual of a child

25 who is the child of such individual’s spouse.
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1 ‘‘(3) ELIGIBLE CHILD.—The term ‘eligible

2 child’ means any individual who has not attained age

3 18 as of the time of the adoption.

4 ‘‘(4) CHILD WITH SPECIAL NEEDS.—The term

5 ‘child with special needs’ means any eligible child

6 if—

7 ‘‘(A) a State has determined that the child

8 cannot or should not be returned to the home

9 of his parents, and

10 ‘‘(B) such State has determined that there

11 exists with respect to the child a specific factor

12 or condition (such as his ethnic background,

13 age, or membership in a minority or sibling

14 group, or the presence of factors such as medi15 cal conditions or physical, mental, or emotional

16 handicaps) because of which it is reasonable to

17 conclude that such child cannot be placed with

18 adoptive parents without providing adoption as19 sistance.

20 ‘‘(e) MARRIED COUPLES MUST FILE JOINT RE21 TURNS.—Rules similar to the rules of paragraphs (2), (3),

22 and (4) of section 21(e) shall apply for purposes of this

23 section.’’.

24 (b) CONFORMING AMENDMENTS.—The table of sec25 tions for subpart A of part IV of subchapter A of chapter
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1 1 of the Internal Revenue Code of 1986 is amended by

2 inserting after the item relating to section 22 the following

3 new item:

‘‘Sec. 23. Adoption expenses.’’.

4 (c) EFFECTIVE DATE.—The amendments made by

5 this section shall apply to taxable years beginning after

6 December 31, 1995.

7 SEC. 3. DISTRIBUTIONS FROM CERTAIN PLANS MAY BE

8 USED WITHOUT PENALTY TO PAY ADOPTION

9 EXPENSES.

10 (a) IN GENERAL.—Paragraph (2) of section 72(t) of

11 the Internal Revenue Code of 1986 (relating to exceptions

12 to 10-percent additional tax on early distributions from

13 qualified retirement plans) is amended by adding at the

14 end the following new subparagraph:

15 ‘‘(D) DISTRIBUTIONS FROM CERTAIN

16 PLANS FOR ADOPTION EXPENSES.—Distribu17 tions to an individual from an individual retire18 ment plan of so much of the qualified adoption

19 expenses (as defined in section 23(d)) of the in20 dividual as does not exceed $2,000.’’.

21 (b) CONFORMING AMENDMENT.—Subparagraph (B)

22 of section 72(t)(2) of the Internal Revenue Code of 1986

23 is amended by striking ‘‘or (C)’’ and inserting ‘‘, (C) or

24 (D)’’.
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to payments and distributions after

3 December 31, 1995.

4 SEC. 4. EXCLUSION OF AMOUNTS RECEIVED UNDER EM5 PLOYER’S ADOPTION ASSISTANCE PRO6 GRAMS.

7 (a) IN GENERAL.—Part III of subchapter B of chap8 ter 1 of the Internal Revenue Code of 1986 (relating to

9 items specifically excluded from gross income) is amended

10 by redesignating section 137 as section 138 and by insert11 ing after section 136 the following new section:

12 ‘‘SEC. 137. ADOPTION ASSISTANCE PROGRAMS.

13 ‘‘(a) IN GENERAL.—Gross income of an employee

14 does not include amounts paid or expenses incurred by the

15 employer for qualified adoption expenses in connection

16 with the adoption of a child by an employee if such

17 amounts are furnished pursuant to an adoption assistance

18 program.

19 ‘‘(b) LIMITATIONS.—

20 ‘‘(1) DOLLAR LIMITATION.—The aggregate

21 amount excludable from gross income under sub22 section (a) for all taxable years with respect to the

23 adoption of any single child by the taxpayer shall

24 not exceed $5,000 ($7,500, in the case of a child

25 with special needs (as defined in section 23(d)(4))).
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1 ‘‘(2) INCOME LIMITATION.—The amount ex2 cludable from gross income under subsection (a) for

3 any taxable year shall be reduced (but not below

4 zero) by an amount which bears the same ratio to

5 the amount so excludable (determined without re6 gard to this paragraph but with regard to paragraph

7 (1)) as—

8 ‘‘(A) the amount (if any) by which the tax9 payer’s adjusted gross income (determined

10 without regard to this section and sections 911,

11 931, and 933) exceeds $75,000, bears to

12 ‘‘(B) $40,000.

13 ‘‘(c) ADOPTION ASSISTANCE PROGRAM.—For pur14 poses of this section, an adoption assistance program is

15 a plan of an employer—

16 ‘‘(1) under which the employer provides employ17 ees with adoption assistance, and

18 ‘‘(2) which meets requirements similar to the

19 requirements of paragraphs (2), (3), and (5) of sec20 tion 127(b).

21 An adoption reimbursement program operated under sec22 tion 1052 of title 10, United States Code (relating to

23 armed forces) or section 514 of title 14, United States

24 Code (relating to members of the Coast Guard) shall be
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1 treated as an adoption assistance program for purposes

2 of this section.

3 ‘‘(d) QUALIFIED ADOPTION EXPENSES.—For pur4 poses of this section, the term ‘qualified adoption ex5 penses’ has the meaning given such term by section

6 23(d).’’.

7 (b) CONFORMING AMENDMENT.—The table of sec8 tions for part III of subchapter B of chapter 1 of the In9 ternal Revenue Code of 1986 is amended by striking the

10 item relating to section 137 and inserting the following:

‘‘Sec. 137. Adoption assistance programs.

‘‘Sec. 138. Cross reference to other Acts.’’.

11 (c) EFFECTIVE DATE.—The amendments made by

12 this section shall apply to taxable years beginning after

13 December 31, 1995.

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