Adoption Credit’s Refundability Makes It Valuable—and Vulnerable

Through the 2025 tax-and-spending law, Congress made the adoption tax credit partially refundable starting in 2025 to help families absorb adoption costs—but an IRS crackdown on fraud could turn that pro-family policy into another refund-delay mechanism. To fix the problem, the agency should publish specific related guidance to make claiming the credit faster and easier.

Giving families access to at least part of the credit as a refund is good policy—and makes the difference between a benefit that exists on paper and one that helps when the bills come due. A family can spend tens of thousands of dollars on agency fees, legal costs, travel, and myriad other line items that make the process equal parts moral commitment and financial endurance race.

But refundable tax credits exist fully within the IRS fraud danger zone. Any time a credit can produce a check from the government, fraudsters will pounce.

The IRS must treat the refund claim as possibly qualified relief and possibly improper payment. This is a rational assessment because fraud risk is real. Improper claims can drain revenue and divert dollars from legitimate claimants—and in some cases, they can funnel money to organized criminal schemes.

Last time Congress made the adoption credit (fully) refundable, for tax years 2010 and 2011, the IRS responded by instituting sweeping additional review. This indicates that a similar tension may become relevant when taxpayers begin claiming the expanded credit. The agency can hold back refunds, send notices demanding documentation, and ultimately leave families in months of limbo.

The IRS shouldn’t simply wave every claim through, of course—but it also shouldn’t confuse aggressive screening with effective screening. It should aim for a targeted and nuanced review process that separates fraudulent claims from complicated but legitimate ones.

Providing clear taxpayer guidance before filing, giving IRS staff enhanced training, and carefully calibrating fraud filters would help. But like so many tax enforcement reforms, it requires an adequately funded tax administration.

Fraud prevention procedure becomes a policy problem when it is too rough an instrument to distinguish a bad claim from a complicated one. Adoption isn’t a plug-and-play transaction that can be uniformly assessed—it can involve agencies that span oceans, state courts, amended documents, failed placements, special-needs considerations, and expenses that may not fit neatly into one of a few checkboxes. A claim requiring documentation doesn’t automatically mean it is suspicious.

The adoption credit occupies a unique place in the tax code, as it is large enough to be meaningful—a maximum of $17,670 and up to $5,120 for the refundable portion—but narrow enough in the aggregate to avoid substantial public attention. It is also complicated enough that many eligible families may need help claiming it correctly.

If the IRS has the staff, training, and systems to cleanly separate fraudulent claims from legitimate ones following its staff reductions, partial refundability can work as intended. If it doesn’t, the agency may fall back on automated filters, correspondence audits, and ultimately delay refunds.

The 2010 experience should make Congress nervous about the IRS’s capacity to administer the adoption tax credit even during normally funded times. During the 2012 filing season, the National Taxpayer Advocate reported that 90% of returns claiming the credit were subject to additional scrutiny, and 69% were selected for audit. That isn’t a calibrated fraud filter; it’s a crude catchall.

Being subject to an audit for claiming a credit that Congress created for you changes the credit’s value. If paid promptly, a refundable credit can help a family replenish emergency savings, pay down adoption-related debt, or manage the financial shock that can otherwise accompany an already expensive process. If paid out months later—after notices, phone calls, professional fees, and potentially a full-fledged audit—the credit can effectively be worth less.

This IRS should rectify this by sharing specific guidance before tax season that tells taxpayers in plain language what documentation will likely substantiate a claim and avoid delay. It should also create and provide a standardized attachment or checklist for Form 8839, Qualified Adoption Expenses, so families can submit organized upfront documentation rather than wait for vague notices months after filing.

The agency should also have a dedicated review track for adoption tax credit claims, staffed with employees trained on the credit’s timing rules, documentation requirements, and common adoption fact patterns. Because if taxpayers looking to claim the credit feel like they’ll automatically invite IRS scrutiny, some will wait, underclaim, hire tax advice they can’t comfortably afford, or even avoid the refundable portion altogether.

Lawmakers can’t simultaneously expand a refundable credit, demand fraud prevention, hollow out the administrative capacity to distinguish legitimate claims from illegitimate ones, and then act mystified when taxpayers end up trapped in delay.

But fraud prevention and timely relief don’t need to be competing goals—Congress and the IRS only place them in opposition when they legislate targeted relief and then cause broad delays when reducing funding.

Andrew Leahey is an assistant professor of law at Drexel Kline School of Law, where he teaches classes on tax, technology, and regulation. Follow him on Mastodon at @andrew@esq.social.

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