Current through Register Vol. 49, No. 18, September 16, 2024
PURPOSE: Section
135.327, RSMo, provides a tax
credit for nonrecurring adoption expenses incurred in the adoption of a child.
This rule, among other things, interprets section
135.327, RSMo, and other
sections related to this credit; specifies how the credit shall be applied for
or assigned, sold, or transferred; sets forth some aspects of the handling of
Pre-2024 Credits and Post-2024 Credits; and establishes the order under which a
reduction in the credit shall occur pursuant to section
135.335, RSMo.
(1) As used in this rule, the following terms
shall have the following meanings:
(A)
"Adoption Tax Credit Limit," means ten thousand dollars ($10,000), or, for each
tax year beginning on or after January 1, 2024, ten thousand dollars ($10,000)
adjusted annually for the increase in cost-of-living, if any, as of the
preceding July over the level of July of the immediately preceding year of the
Consumer Price Index for All Urban Consumers;
(B) "Pre-2024 Credit," means an Adoption Tax
Credit issued for a tax year beginning on or before December 31,
2023;
(C) "Post-2024 Credit," means
an Adoption Tax Credit issued for a tax year beginning on or after January 1,
2024.
(2) An individual
residing in this state who proceeds in good faith to adopt a child may be
eligible for an Adoption Tax Credit. A business entity providing funds to an
employee to enable that employee to proceed in good faith with the adoption of
a child may be eligible for an Adoption Tax Credit. The tax credit is limited
to the lesser of the Adoption Tax Credit Limit or the actual amount of
nonrecurring adoption expenses incurred in the adoption of the child.
(A) Example-Taxpayer Moving to another State:
A taxpayer residing in Missouri proceeds in good faith to adopt a child, and
the child is placed in the taxpayer's home in 2023. The taxpayer incurred
$8,000 of nonrecurring adoption expenses in 2023, and the taxpayer has Missouri
income tax of $6,000 for the 2023 tax year. The taxpayer may apply for an
Adoption Tax Credit in the amount of $4,000 for the 2023 tax year. In 2025, the
taxpayer is not a resident of Missouri because the taxpayer moves to and
becomes a resident of Oklahoma. The adoption is also finalized in 2025. The
taxpayer has Missouri income tax of $3,000 for the 2025 tax year. The taxpayer
is ineligible to apply for an Adoption Tax Credit for the 2025 tax
year.
(3) The lesser of
one-half (1/2) of the actual amount of nonrecurring adoption expenses, or
one-half (1/2) of the Adoption Tax Credit Limit for the tax year in which the
child is placed in the adoptive parent's home, may be used to reduce the income
tax on the adoptive parent's individual income tax return, or to reduce the
state tax liability of the business entity, for the tax year in which the child
is placed in the adoptive parent's home. The remaining one-half (1/2) of the
tax credit, up to one-half (1/2) of the Adoption Tax Credit Limit for the tax
year in which the adoption is finalized, may be used to reduce the income tax
of the adoptive parent, or reduce the state tax liability of the business
entity, for the tax year the adoption is finalized. The combined total of the
portion of the tax credit for the tax year in which the child is placed in the
adoptive parent's home and the portion of the tax credit for the tax year in
which the adoption is finalized must not exceed the Adoption Tax Credit Limit
for the tax year in which the adoption is finalized.
(A) Example-Same Year for Adoption Placement
and Finalization: A child is placed in the home and the adoption is finalized
in 2024. The taxpayer incurred $15,000 in nonrecurring adoption expenses.
Assume for purposes of this example that the Adoption Tax Credit Limit for 2024
is $10,050. The taxpayer has applied for, and the department has approved, an
Adoption Tax Credit for $10,050. The taxpayer has income tax of $6,000 for the
2024 tax year. The taxpayer may use $6,000 against income tax for the 2024 tax
year and may request a refund for the remaining $4,050.
(B) Example-Different Adjacent Years for
Adoption Placement and Finalization: A child is placed in the home in 2023. The
adoption is finalized in 2024. The individual incurred $15,000 in nonrecurring
adoption expenses in 2023, but none in 2024. Assume for purposes of this
example that the Adoption Tax Credit Limit for 2024 is $10,050. The individual
has income tax of $4,000 for 2023. Because this portion of the credit is
limited to 50% of the Adoption Tax Credit Limit for the year that the child is
placed in the home, the individual can apply for $5,000 in 2023. This is a
Pre-2024 Credit, so the individual can redeem $4,000 of this portion of the
credit against the 2023 income tax and may carry forward the remaining $1,000
of the credit for up to four (4) subsequent tax years. The individual may apply
for a $5,025 credit for 2024.
(C)
Example-Different Non-Adjacent Years for Adoption Placement and Finalization: A
child is placed in the home in 2023. The adoption is finalized in 2025. Assume
for purposes of this example that the Adoption Tax Credit Limit for 2025 is
$10,100. The individual incurred $15,000 in nonrecurring adoption expenses in
2022 and 2023. The individual has income tax of $6,000 for 2023 and should
apply for $5,000 of the Adoption Tax Credit for that year (50% of the Adoption
Tax Credit Limit for that year). Because the adoption was not finalized until
2025, the individual has no credit available for 2024. For 2025, the individual
may apply for $5,050 of the Adoption Tax Credit.
(D) Example-Carryforward from First Year: A
child is placed in the home in 2023. The adoption is finalized in 2025. Assume
for purposes of this example that the Adoption Tax Credit Limit for 2025 is
$10,100. The individual incurred $15,000 in nonrecurring adoption expenses in
2022 and 2023. The individual has income tax of $3,000 for each of the tax
years 2023 and for 2024. The individual may apply for $5,000 of the Adoption
Tax Credit for tax year 2023. If the application is approved, the individual
may use $3,000 of the $5,000 available credit against income tax for 2023, and,
because this is a Pre-2024 Credit, may carry forward and use $2,000 of that
credit against 2024 income tax. The individual may then apply for $5,050 of the
Adoption Tax Credit for tax year 2025.
(E) Example-Less Than Maximum Nonrecurring
Adoption Expenses Incurred: A child is placed in the home in 2023. The adoption
is finalized in 2025. Assume for purposes of this example that the Adoption Tax
Credit Limit for 2025 is $10,100. The individual incurred a total of $8,000 in
nonrecurring adoption expenses in 2022 and 2023. The individual has income tax
of $3,000 for each of the tax years 2023 and for 2024. The individual should
apply for $4,000 of the Adoption Tax Credit ($8,000 nonrecurring adoption
expenses x 50%) for tax year 2023. If the application is approved, the
individual may use $3,000 of the $4,000 available credit for 2023, and, because
this is a Pre-2024 Credit, may carry forward and use $1,000 of the credit
against 2024 income tax. The individual should then apply for the remaining
$4,000 of the Adoption Tax Credit for tax year 2025.
(F) Example-Foster Care Placement Leading to
Adoption: A child is placed in the home under a foster care arrangement in
2023. In 2024, the taxpayer begins to proceed in good faith with the adoption
of the child. In 2025, the adoption is finalized. In 2024, the individual
incurred $8,000 in nonrecurring adoption expenses. In this circumstance, the
taxpayer may apply for $4,000 of the Adoption Tax Credit for tax year 2024,
which is treated as the year in which the child is placed in the home for
purposes of adoption and this credit. The taxpayer may apply for the remaining
$4,000 of the Adoption Tax Credit for the tax year 2025.
(4) The Pre-2024 Credit used by an adoptive
parent may not exceed the income tax for the tax year, and the Pre-2024 Credit
used by a business entity may not exceed the business entity's state tax
liability on the return for which the credit is claimed for the tax year. The
portion of a Pre-2024 Credit which may otherwise be used for the tax year in
which the child is placed in the home, but which exceeds the tax due for that
tax year, shall not be refunded but may be carried forward and used against the
taxpayer's tax due for the subsequent four (4) tax years from the tax year the
child is placed in the home. The portion of a Pre-2024 Credit which may
otherwise be used for the tax year in which the adoption is finalized, but
which exceeds the tax due, shall not be refunded but may be carried forward and
used against the taxpayer's tax due for the subsequent four (4) tax years from
the tax year the adoption is finalized. If a taxpayer has carried Pre-2024
Credits forward to a tax year for which the taxpayer also has Post-2024
Credits, the taxpayer may designate on the tax return whether the Pre-2024
Credits or Post-2024 Credits shall first be applied to the tax liability for
that tax year. If no designation is made, the department will apply Pre-2024
Credits to a tax liability before applying Post-2024 Credits to that liability.
(A) Example-Pre-2024 Credit and Post-2024
Credit Redeemed in Same Year: A child is placed in the home in 2023. The
adoption is finalized in 2024. Assume for purposes of this example that the
Adoption Tax Credit Limit for 2024 is $10,050. The individual incurred $15,000
in nonrecurring adoption expenses in 2022 and 2023. The individual has income
tax of $3,000 for tax year 2023 and income tax of $1,000 for 2024. The
individual may apply for $5,000 of the Adoption Tax Credit for tax year 2023.
If the application is approved, the individual may use $3,000 of the $5,000
available credit for 2023. Because this is a Pre-2024 Credit, the individual
has $2,000 remaining to carry forward. The individual applies for and is
approved for a credit of $5,025 for tax year 2024. The individual claims all of
the credits with the individual's tax year 2024 return but does not designate
on the tax return whether the Pre-2024 Credit or the Post-2024 Credit shall
first be applied against the tax year 2025 liability. Therefore, the department
first applies the Pre-2024 Credit to the $1,000 liability, leaving the taxpayer
with $1,000 of a Pre-2024 Credit to carry forward. The department then issues
an income tax refund for the Post-2024 Credit in the amount of
$5,025.
(5) Only one (1)
credit of up to the Adoption Tax Credit Limit is available for each child that
is adopted. For a fiscal year beginning on or after July 1, 2024, in the event
that an individual and a business entity both apply to claim a credit for the
same child under section
135.327, RSMo, the earlier-filed
application will take precedence over the later-filed application. If there are
simultaneous application filings or if the relevant fiscal year begins before
July 1, 2024, then, in the event that an individual and a business entity both
apply to claim a credit for the same child under section
135.327, RSMo, the individual's
application to claim the credit will take precedence over the business entity's
application to claim the credit. In no event may the combined total of credit
allowed to an individual and a business exceed the Adoption Tax Credit Limit
amount for the same child, and in no event may a business entity and an
individual use the same nonrecurring adoption expenses to determine the tax
credit amount for which they are eligible. The preceding sentence applies
regardless of whether the nonrecurring adoption expenses were paid using funds
provided by a business entity to an individual employee.
(A) Example-Fiscal Year Begins Before July 1,
2024: In 2023, Jane Smith was an employee of ABC Corp. As part of an employee
benefit program, ABC Corp. provided Jane Smith with $10,000 in funds for
nonrecurring adoption expenses, which Jane Smith then spent on those
nonrecurring adoption expenses. The employment agreement between ABC Corp. and
Jane Smith specified that only ABC Corp., and not Jane Smith, would be allowed
to include those nonrecurring adoption expenses on an application for this tax
credit. The child adopted by Jane Smith was placed in her home and the adoption
was finalized in 2023. In January of 2024, Jane Smith ended her employment with
ABC Corp. In February of 2024, ABC Corp. filed its application for the Adoption
Tax Credit for the $10,000 in funds it provided to her. In March of 2024, Jane
Smith filed her application for the $10,000 in nonrecurring adoption expenses
she paid using the funds provided by ABC Corp. The cumulative tax credit
maximum was not reached for that fiscal year, which was a fiscal year beginning
before July 1, 2024. After the end of the application period, the department
will approve Jane Smith's application for the $10,000 credit and will deny ABC
Corp.'s application, because only one $10,000 credit is allowed for each child
adopted. This does not eliminate any private cause of action ABC Corp. may have
against Jane Smith in connection with her employment
agreement.
(6) To apply
for the Adoption Tax Credit, the taxpayer must attach a completed form MO-ATC
to the return for the tax year in which the child is placed in the adoptive
parent's home or for the tax year in which the adoption is finalized, or both.
This application must be filed between July 1 and April 15 of the fiscal year,
regardless of any change to the income tax return deadline for Saturdays,
Sundays, or holidays. A denied application may be refiled between July 1 and
April 15 of the following fiscal year, but only if the completed form MO-ATC is
attached to an original or amended return for either the tax year the child is
placed in the adoptive parent's home or the tax year the adoption is finalized,
as applicable.
(A) Example-Late-Filed Form
MO-ATC: An individual incurred a total of $10,000 in nonrecurring adoption
expenses related to the adoption of a child. The individual incurred income tax
of $3,000 in 2023 and filed a 2023 Missouri income tax return and form MO-ATC
on April 16, 2024, after the filing period for the Adoption Tax Credit. The
application for credit will be denied since the application was filed after the
filing period. The form MO-ATC may be refiled in the next fiscal year attached
to an amended Missouri income tax return for tax year 2023.
(7) After it has been approved and issued by
the department, the owner of an Adoption Tax Credit may assign, transfer, or
sell the credit. To claim the credit, the buyer must provide to the department
a statement signed by the seller that includes the names and addresses of the
buyer and seller, the date the credit was sold, the amount of tax credit sold,
the price paid, and must also provide a completed and signed Form MO-TF and a
copy of the Form MO-ATC completed by the adoptive parent(s) or the adoptive
parent(s)' employer. A sale of the credit shall not be effective if the amount
paid in exchange for the credit is less than 75% of the amount of the credit
sold. For Pre-2024 Credits, the tax years to which a tax credit may be carried
forward by the assignee, transferee, or buyer of the credit shall not exceed
the tax years to which the assignor, transferor, or seller could have carried
forward the tax credit. For Post-2024 Credits, no carryforward is allowed.
(A) Example-Non-Cash Exchange for Adoption
Tax Credit: A car dealer accepts a Pre-2024 Credit as payment for a car. The
fair market value of the car must be at least 75% of the amount of the Adoption
Tax Credit transferred to the car dealer. The car dealer may use the Pre-2024
Credit to offset the car dealer's income tax liability, subject to the
applicable restrictions and filing requirements. No portion of this credit is
refundable, but the credit can be carried over to a later tax year for the
remaining life of the credit.
(8) The reduction of the amount of the credit
by the state's cost of providing care, treatment, maintenance, and services
under section 135.335, RSMo, shall occur as
prescribed in this section. The amount of the credit redeemed on any tax return
will be reduced, beginning with the most recently filed original or amended tax
return redeeming the credit for the most recently ended tax year and continuing
in reverse chronological order until the tax year of adoption. If, in
connection with the same return, a Post-2024 Credit is used both to reduce
income tax liability and is refunded for the same tax year, the portion of that
credit used to reduce income tax liability shall be reduced before the portion
of that credit which was refunded. If, after the credit has first been reduced
as described in the previous two (2) sentences, an amount of Pre-2024 Credits
remains eligible to be carried forward, further reduction will be made in the
order in which redemptions of such carryforwards are filed with the department.
The state's cost of providing care, treatment, maintenance, and services may be
updated from time to time to reflect additional costs incurred by the state
over time, and the reduction of the credit in the order prescribed by this
section, beginning with the order described in the second sentence of this
section, may be separately performed each time the state's cost of providing
care, treatment, maintenance, and services is updated. The reduction required
by section 135.335, RSMo, in the order
specified in this rule, shall apply to any credit amounts issued for the same
child's adoption process, even if the credit amounts were issued to multiple
taxpayers, and even if the tax credit has been assigned, transferred, or sold.
(A) Example-Order of Reduction of Pre-2024
Credit Amount: In 2024, Jane Smith and her employer, XYZ Corp., apply for, and
are approved for, an Adoption Tax Credit with respect to the same child in the
amount of $1,000 each for tax year 2023. The child was placed in the home, and
the adoption was finalized, in 2023. XYZ Corp. uses $400 of its credit against
its income tax liability for tax year 2023 on a return filed March 15, 2024,
and has $600 remaining eligible to be carried forward. Jane Smith uses $300 of
her credit against her individual income tax liability for tax year 2023 on a
return filed April 10, 2024. Jane Smith sells $500 of her credit to ABC Corp.
and keeps the remaining $200 eligible for her to carry forward. ABC Corp. uses
$400 of the purchased credit on its tax year 2023 corporate income tax return
filed late, on May 1, 2024, and intends to carry forward the remaining $100 of
the credit to tax year 2024. However, at the end of 2024, the adopted child of
Jane Smith is placed, with no intent to return to the adoptive home, in foster
care, and the state's costs of providing care for the child are $1,800. The
reduction of the credit applies in the following order. First, ABC Corp.'s $400
redemption of the credit on its May 1, 2024, tax return is reduced to $0. ABC
Corp. has a resulting tax underpayment for its tax year 2023. Second, Jane
Smith's $300 redemption of the credit on her April 10, 2024, tax return is
reduced to $0. Jane Smith has a resulting tax underpayment for her tax year
2023. Third, XYZ Corp.'s $400 redemption of the credit on its March 15, 2024,
tax return is reduced to $0. XYZ Corp. has a resulting tax underpayment for its
tax year 2023. Subsequently, ABC Corp. files its 2024 tax return on April 2,
2025, attempting to redeem its remaining $600 credit, and XYZ Corp. files its
2024 tax return on April 3, 2025, attempting to redeem its remaining $100
credit. The department reduces these credits to $0. Afterwards, on April 9,
2025, Jane Smith files her 2024 tax return, redeem her remaining $200 credit
carryforward, which the department initially allows as the $1,800 required
reduction has been satisfied. However, based upon further information provided
to the department, on June 1, 2025, the state's costs of providing care for the
child have been increased by $500. The department therefore engages in another
round of reductions, reducing to $0 Jane Smith's $200 credit redeemed on her
tax year 2024 return. Jane Smith has a resulting underpayment for her tax year
2024.
(B) Example-Order of Reduction
of Post-2024 Credit Amount: In 2025, Jane Smith and her employer, XYZ Corp.,
apply for and are approved for an Adoption Tax Credit with respect to the same
child in the amount of $1,000 each for tax year 2024. The child was placed in
the home, and the adoption was finalized, in 2024. XYZ Corp. uses the $1,000
credit against its $600 income tax liability for tax year 2024 on a return
filed March 15, 2025, and requests a refund of the remaining $400 credit. Jane
Smith had no income tax for tax year 2024, so she files a return for tax year
2024 on April 10, 2025, requesting a refund of her entire $1,000 Adoption Tax
Credit. On May 1, 2025, the department issues the $400 and $1,000 refunds to
XYZ Corp. and Jane Smith, respectively. However, at the end of 2025, the
adopted child of Jane Smith is placed, with no intent to return to the adoptive
home, in foster care, and the state's costs of providing care for the child are
$1,600. The department first reduces Jane Smith's credit to $0, and then issues
her a notice of deficiency seeking repayment of the $1,000 refund. The
department next reduces to $0 XYZ Corp.'s $600 credit used against tax on the
tax year 2024 return. This results in an underpayment for XYZ Corp.'s 2024 tax
year.
(9) No credit shall
be allowed for that portion of the nonrecurring adoption expenses paid from any
funds received under any federal, state, or local government program. No credit
shall be allowed for that portion of the nonrecurring adoption expenses for
which a credit is allowable and taken under any provision of federal, state, or
local law similar to the Adoption Tax Credit Act. If there is a deduction
allowable and taken under any other provision of federal, state, or local law
which is similar to the credit allowable under section
135.327, RSMo, the credit
allowable for nonrecurring adoption expense shall be reduced by the amount of
the decrease in the tax liability resulting from taking such deduction.
(A) Example-Payment of Nonrecurring Adoption
Expenses by Local Government Program Funds Reduces Adoption Tax Credit Eligible
Amount: As an employee benefit, ABC Corp. provides $5,000 in funds to be used
for nonrecurring adoption expenses to its employee to enable that employee to
proceed in good faith with the adoption of a child. However, after the $5,000
employee benefit was provided to the employee, the employee received funds for
the employee's full amount of nonrecurring adoption expenses from a local
government program. The employee paid all nonrecurring adoption expenses from
the funds received under this local government program. ABC Corp. should not
apply for an Adoption Tax Credit, as the amount of the credit allowable has
been reduced to zero because the nonrecurring adoption expenses were paid from
funds received under a local program.
(B) Example-Funds from Religious Institutions
or Foreign Governments: Jane Smith, a Missouri resident, decides to adopt a
child from a foreign country. The adopted child is placed in her home and the
adoption is finalized in the same year. For that year, Jane Smith pays $1,500
in nonrecurring adoption expenses, and she receives $200 in funds for
nonrecurring adoption expenses from a religious institution, $800 in funds for
nonrecurring adoption expenses from the government of the foreign country, and
a $700 federal adoption tax credit based on her nonrecurring adoption expenses.
The money received from a religious institution and from the government of a
foreign country are not payments from a federal, state, or local government
program, so Jane should only apply for an Adoption Tax Credit of $800 ($1,500
in nonrecurring adoption expenses - $700 federal adoption tax
credit).
(10) Prior to the
approval of any application to claim the credit, pursuant to section
135.815, RSMo, the department
shall verify that the applicant does not owe any delinquent income, sales, or
use taxes, or interest, additions, or penalties on such taxes, and verify
through the department of commerce and insurance that the applicant does not
owe any delinquent insurance taxes. In the event that there is any such
delinquency, the amount of the credit approved shall be applied to all such
delinquencies, and the remainder shall be issued to the applicant. For a fiscal
year beginning before July 1, 2024, the amount of the credit approved and
applied to a delinquency pursuant to section
135.815, RSMo, counts against
the maximum fiscal year cumulative limit on all credits which may be claimed
set forth in section 135.327.4, RSMo. In addition, any portion of a Post-2024
Credit that would otherwise be refunded in connection with a Missouri income
tax return is subject to applicable setoff and related provisions of sections
143.781 to
143.790, RSMo.
(A) Example-Adoption Tax Credit Amount
Automatically Applied to Tax Delinquencies: Jane Smith pays $7,000 in
nonrecurring adoption expenses, $5,000 of which is funded by her employer, ABC
Corp., through its adoption assistance program. The adopted child is placed in
Jane Smith's home and the adoption is finalized in the same year. At the same
time as she files her Missouri individual income tax return, Jane Smith applies
for an Adoption Tax Credit of $2,000, and, at the same time that it files its
Missouri corporate income tax return, ABC Corp. applies for an Adoption Tax
Credit of $5,000. ABC Corp. has an income tax and use tax delinquency from
prior periods totaling $4,000. The $5,000 Adoption Tax Credit issued by the
department to ABC Corp. is reduced by $4,000 to $1,000. Jane Smith has no prior
tax delinquencies, and her application for the $2,000 credit is fully
approved.
(11) For the
fiscal year ending on June 30, 2024-
(A) The
cumulative amount of tax credits that may be approved in any one (1) fiscal
year shall not exceed a six (6) million dollar maximum;
(B) After the April 15 application deadline,
the department will determine the amount of credits applied for where the child
adopted in connection with the application is both a special needs child and a
resident or ward of this state at the time the adoption is initiated ("Priority
Applications");
(C) If the total
amount of credits applied for in Priority Applications exceeds the six- (6-)
million-dollar cumulative maximum, properly filed Priority Applications will be
approved on a pro rata basis and no applications other than Priority
Applications will be approved;
(D)
If the total amount of credits applied for in Priority Applications equals or
is below the six- (6-) million-dollar cumulative maximum, all properly filed
Priority Applications will be approved and the properly filed applications
which are not Priority Applications will be approved on a pro rata basis up to
the remainder of the six- (6-) million-dollar maximum; and
(E) If the total amount of credits applied
for on both Priority Applications and applications which are not Priority
Applications is below the six- (6-) million dollar maximum for the fiscal year,
all properly filed applications will be approved.
(12) In the event of a full or partial credit
denial due to the fiscal year cumulative tax credit maximum or pro rata
determination referred to in section (11) above, the taxpayer will not be held
liable for any penalty or addition to tax for the resulting underpayment on the
basis of negligence, lack of good cause, or similar basis, provided the balance
is paid, or a payment plan, signed by the taxpayer, has been received and
approved by the department, within sixty (60) days from the notice of
denial.
