Instructions for Form 8839 (2006)

What's New

The adoption credit and the income exclusion for employer-provided adoption benefits can no longer be claimed on Form 1040A.

Purpose of Form

Use Form 8839 to figure the amount of your adoption credit and any employer-provided adoption benefits you can exclude from your income. You can claim both the credit and the exclusion for expenses of adopting an eligible child. But, you cannot claim both for the same expenses.

Adoption credit. Use Form 8839, Part II, to figure the amount of adoption credit you can take on Form 1040, line 54, or Form 1040NR, line 49. You may be able to take this credit if any of the following statements are true.

You paid qualified adoption expenses in:
1. 2005 and the adoption was not final at the end of 2005, or
2. 2006 and the adoption became final in or before 2006.
You adopted a child with special needs and the adoption became final in 2006.
You paid expenses after 1996 in connection with the adoption of an eligible foreign child and the adoption became final in 2006. See the instructions for line 1, column (e), that begin on page 2.
You have a carryforward of an adoption credit from a prior year.

Income exclusion for employer-provided adoption benefits. Use Form 8839, Part III, to figure the amount of employer-provided adoption benefits you can exclude from your income on Form 1040, line 7, or Form 1040NR, line 8. You may be able to exclude these benefits from income if your employer had a qualified adoption assistance program (see Employer-Provided Adoption Benefits on this page) and any of the following statements are true.

You received employer-provided adoption benefits in 2006. However, special rules apply for benefits received in connection with the adoption of an eligible foreign child. See the instructions for line 1, column (e), that begin on page 2.
You adopted a child with special needs and the adoption became final in 2006.
You received employer-provided adoption benefits after 1996 in connection with the adoption of an eligible foreign child and the adoption became final in 2006. See the instructions for line 1, column (e), that begin on
page 2.

You must complete Form 8839, Part III, before you can figure the credit, if any, in Part II.

You cannot exclude employer-provided adoption benefits if your employer is an S corporation in which you own more than 2% of the stock or stock with more than 2% of the voting power.

Definitions

Eligible Child

An eligible child is:

Any child under age 18. If the child turned 18 during the year, the child is an eligible child for the part of the year he or she was under age 18.
Any disabled person physically or mentally unable to take care of himself or herself.

If you and another person (other than your spouse if filing jointly) adopted or tried to adopt an eligible child, see the instructions for line 2 (or line 19 if applicable) on page 4 before completing Part II (or Part III).

Qualified Adoption Expenses

Qualified adoption expenses are reasonable and necessary expenses directly related to, and for the principal purpose of, the legal adoption of an eligible child.

Qualified adoption expenses include:

Adoption fees,
Attorney fees,
Court costs,
Travel expenses (including meals and lodging) while away from home, and
Re-adoption expenses relating to the adoption of a foreign child.

Qualified adoption expenses do not include expenses:

For which you received funds under any state, local, or federal program,
That violate state or federal law,
For carrying out a surrogate parenting arrangement,
For the adoption of your spouse's child,
Paid or reimbursed by your employer or any other person or organization,
Paid before 1997, or
Allowed as a credit or deduction under any other provision of federal income tax law.

Employer-Provided Adoption Benefits

Employer-provided adoption benefits are amounts your employer paid directly to either you or a third party for qualified adoption expenses under a qualified adoption assistance program. Generally, a qualified adoption assistance program is a separate written plan set up by an employer to provide adoption assistance to its employees. For more details, see Pub. 15-B, Employer's Tax Guide to Fringe Benefits.

Employer-provided adoption benefits should be shown in box 12 of your Form(s) W-2 with code T. Your salary may have been reduced to pay these benefits. You may also be able to exclude amounts not shown in box 12 of your Form W-2 if all of the following apply.

You adopted a child with special needs. See the instructions for line 1, column (d), on this page for the definition of a child with special needs.
The adoption became final in 2006.
Your employer had a qualified adoption assistance program as described on page 1.

Who Can Take the Adoption Credit or Exclude Employer-Provided Adoption Benefits?

You may be able to take the credit or exclusion if all three of the following statements are true.

Your filing status is single, head of household, qualifying widow(er), or married filing jointly. If your filing status is married filing separately, see Married Persons Filing Separate Returns below.
Your modified AGI is less than $204,410 or you have a carryforward of an adoption credit from a prior year. To figure your modified AGI, see the instructions for line 8 on page 4 (for the credit) or line 26 on page 6 (for the exclusion).
You report the required information about the eligible child in Part l.

Married Persons Filing Separate Returns

You may be able to take the credit or exclusion if all of the following apply.

You meet items (2) and (3) under Who Can Take the Adoption Credit or Exclude Employer-Provided Adoption Benefits above.
You lived apart from your spouse during the last 6 months of 2006.
The eligible child lived in your home more than half of 2006.
You provided over half the cost of keeping up your home.

General Instructions