TAX TIME: Did Justin and Marsha Harris receive a tax credit for adopting two children who stayed in his household for only one year?
This week, we are following up on several financial questions raised by the "rehoming" of two adopted girls by Rep. Justin Harris
and Marsha Harris
, the subject of our March 5
and March 12
It appears the Harrises did not
retain the foster/adoption subsidies from the state of Arkansas, as explained below. However, the Harris family may have received another, more significant financial benefit as a result of adopting the girls: A one-time, nonrefundable federal adoption credit
of $12,970 per child in 2013. The couple might have also claimed a federal Child Tax Credit of up to $1,000 per child, which means the Harrises may have saved some $27,970 in federal income taxes as a result of the adoption. Additionally, Justin and Marsha Harris' overall taxable income may have been lowered by claiming the girls as dependents. In 2013, a dependency exemption was $3,900 per dependent.
Last week, the Times
asked Rep. Harris (via Wells, the attorney) whether the Harrises claimed the adoption tax credit and whether the children were claimed as dependents for any portion of tax years 2012, 2013 or 2014. We have not gotten a reply to those questions so far.
Eligibility doesn't mean the family necessarily claimed the credit, but until the Harrises make their 2012, 2013 and 2014 returns available, it's unclear how the adoption may have affected their overall tax liability and financial position.
Philip D. Oliver,
a professor of tax law at UALR's Bowen Law School, cautioned against assuming that an adoption would be financially beneficial for a family on net. In general, the cost of raising a child far outweighs any perks provided through tax credits.
"The federal benefit would be designed to do no more than offset the cost of the adoption," he said. "The government's not giving a bonanza to people to adopt kids — it's more to offset the disincentive ... it's very hard to make money on this, realistically." It's worth emphasizing again that the credit is one-time only — an adoptive family can claim the credit only once per child, ever.
But, he continued, assuming a family were eligible for the credit, "there could be a short term financial benefit of several thousand dollars in adopting a child with special needs, if the adoption were cheap to carry out." Each of these criteria — eligibility, "cheap to carry out," "special needs" and "short term" — were likely met by the Harris adoption.
First, eligibility. For 2013, the year the girls were adopted, the full $12,970 tax credit was available to taxpayers making up to $197,880 annually in modified adjusted gross income. While we don't know the Harrises' annual income, it's probably lower than $200,000. In 2011, blogger Matt Campbell inspected budget records from Growing God's Kingdom
, the Harrises' West Fork preschool, and determined the couple was paid around $60,000 annually from the school that year. In 2013, Harris took home an additional $45,000 as a state legislator. (Although the salary of a legislator, which is considered a part-time position, was only $15,800 in 2013, Harris claimed some $29,500
for per diem and other expenses — which is not an unusual amount for a state representative.)
Second, there is the cost of the adoption itself. The expense associated with an adoption varies enormously depending on whether it's conducted privately or via a public agency like the Department of Human Services (DHS)
. The U.S. Department of Health and Human Services says
legal fees and agency costs associated with a private adoptions can easily top $40,000, while those conducted through the DHS foster system are often done at little or no cost to adoptive parents.
Harris has said he initially attempted to proceed with a private adoption, but ended up adopting through DHS because of pressure from the agency. He indicated that he paid some costs associated with the attempted private adoption, but not legal fees. In a March 6 interview with KARK's Drew Petrimoulx, Harris said, "we had to go through another home study, which we had already completed for $3,000 [privately] ... our adoption attorney was pro bono. He was not someone we had to pay at the beginning. He was doing it for free. Marsha and I are not made of money."
Third, and crucially, at least one of the two girls adopted by the Harrises were considered "special needs" by DHS, because their background included prior abuse. The IRS says in its information page on the adoption credit
, "If you adopt a U.S. child that a state has determined to have special needs, you are eligible for the maximum amount of credit or exclusion for the year the adoption is final, even if you did not pay qualified adoption expenses."
That is, for adoptions of kids not designated "special needs," the federal adoption tax credit can only be used to offset actual expenses associated with the adoption. But the girls adopted by the Harrises entitled the couple to receive either $12,970 or $25,940 (depending on whether one or both children were "special needs") to offset any
Although the credit isn't refundable — that is, you can't get back more money from the government than you paid in taxes that year — it can be carried forward to reduce a taxpayer's burden in future years, said Joe Kroll,
Executive Director of the North American Council on Adoptable Children,
which educates adoptive parents about the tax credit
"As a special needs adoption, the parents are eligible for the credit without having incurred any adoption related expenses. The credit in 2013 was not refundable, so use of the credit is dependent on the taxpayer's tax liability. If the taxpayer cannot use it all in the first year they have five more years to use, even if the child turns eighteen," Kroll said.
Finally, there is the "short term" issue. In most adoptions, the one-time tax credit would be quickly eaten up by the cost of raising children as the years pass. But the two girls the Harrises adopted were sent away to live with another family in late October 2013, about eight months after the adoption was finalized.
Kroll said, in his experience, the IRS generally does not track whether an adoption disrupts or is dissolved when it awards the credit.
Although the adoption credit is the largest benefit the Harrises might have received, other tax questions also remain. Did they claim a $1,000 Child Tax Credit
for each girl in 2013? Income is crucial in determining eligibility here as well, but if the Harrises made under $110,000 in 2013 they would have been eligible for the full amount (and a small, graduated amount if they made somewhat more than $110,000). Did they claim the girls as dependents for all of 2013? What about the first three months of 2014, when the girls were living in the Francis household? Did they claim the girls — and a third child, their oldest sister — as dependents in 2012?
Until Rep. Harris makes his tax information public, we can't be sure.
*Adoption subsidies received by the Harris family were passed on to the Francises
Then there are the foster/adoption subsidies that the Harrises received from the state of Arkansas, which amounted to around $820 per month. That money has now been accounted for:
Harris Subsidy Checks
Last Thursday, Rep. Harris' attorney, Jennifer Wells, distributed this copy of the checks written by the Harrises to Eric C. Francis
and his wife Stacey, the Bella Vista couple who took the young girls into their home in late 2013. Eric was later convicted of sexually abusing the older of the two girls and is now serving a 40 year sentence in prison.
The checks seem to vindicate Rep. Harris' account that he gave the monthly subsidies to the Francises to help provide for the children's care during their four to five month stay in the Francis home. The subsidies totaled about $820 per month. Based on what we know, it looks as though the check records do indeed match up to the timeline of events.
The check dated January 2014 would correspond to the care of the children in November 2013, and so on. That gives us four checks to the Francises for November 2013 through February 2014. The fifth and last check is written to another family, presumably the parents who have since adopted the children. (How the Harrises or the Francises knew this third family, and why and how they ended up taking the kids, is unknown. We do know that the family has been thoroughly vetted by DHS, however.)
We should also note that the checks are endorsed, and the signatures seem to match those of Eric C. Francis on a Miranda Rights document signed by Francis when interviewed by State Police during the initial investigation into the sexual abuse of the child.
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