article: SECTION 1. SHORT TITLE. This Act may be cited as the ``Adoption Promotion Act of 1996''. SEC. 2. CREDIT FOR ADOPTION EXPENSES. (a) In General.--Subpart A of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 (relating to nonrefundable personal credits) is amended by inserting after section 22 the following new section: ``SEC. 23. ADOPTION EXPENSES. ``(a) Allowance of Credit.--In the case of an individual, there shall be allowed as a credit against the tax imposed by this chapter for the taxable year the amount of the qualified adoption expenses paid or incurred by the taxpayer with respect to the adoption of a child. ``(b) Limitations.-- ``(1) Dollar limitation.--The aggregate amount of qualified adoption expenses which may be taken into account under subsection (a) with respect to the adoption of a child shall not exceed $5,000 ($7,500, in the case of a child with special needs). ``(2) Income limitation.--The amount allowable as a credit under subsection (a) for any taxable year shall be reduced (but not below zero) by an amount which bears the same ratio to the amount so allowable (determined without regard to this paragraph but with regard to paragraph (1)) as-- ``(A) the amount (if any) by which the taxpayer's adjusted gross income (determined without regard to sections 911, 931, and 933) exceeds $65,000, bears to ``(B) $30,000. ``(3) Denial of double benefit.-- ``(A) In general.--No credit shall be allowed under subsection (a) for any expense for which a deduction or credit is allowable under any other provision of this chapter. ``(B) Grants.--No credit shall be allowed under subsection (a) for any expense to the extent that funds for such expense are received under any Federal, State, or local program. ``(C) Reimbursement.--No credit shall be allowed under subsection (a) for any expense to the extent that such expense is reimbursed and the reimbursement is excluded from gross income under section 138. ``(c) Carryforwards of Unused Credit.--If the credit allowable under subsection (a) for any taxable year exceeds the limitation imposed by section 26(a) for such taxable year reduced by the sum of the credits allowable under this subpart (other than this section), such excess shall be carried to the succeeding taxable year and added to the credit allowable under subsection (a) for such taxable year. No credit may be carried forward under this subsection to any taxable year following the fifth taxable year after the taxable year in which the credit arose. For purposes of the preceding sentence, credits shall be treated as used on a first-in first-out basis. ``(d) Definitions.--For purposes of this section-- ``(1) Qualified adoption expenses.--The term `qualified adoption expenses' means-- ``(A) reasonable and necessary adoption fees, court costs, attorney fees, and other expenses-- ``(i) which are directly related to, and the principal purpose of which is for, the legal and finalized adoption of an eligible child by the taxpayer, and ``(ii) which are not incurred in violation of State or Federal law or in carrying out any surrogate parenting arrangement, and ``(B) in the case of the adoption of a child with special needs, any other expenses. ``(2) Expenses for adoption of spouse's child not eligible.--The term `qualified adoption expenses' shall not include any expenses in connection with the adoption by an individual of a child who is the child of such individual's spouse. ``(3) Eligible child.--The term `eligible child' means any individual who has not attained age 18 as of the time of the adoption. ``(4) Child with special needs.--The term `child with special needs' means any eligible child if-- ``(A) a State has determined that the child cannot or should not be returned to the home of his parents, and ``(B) such State has determined that there exists with respect to the child a specific factor or condition (such as his ethnic background, age, or membership in a minority or sibling group, or the presence of factors such as medical conditions or physical, mental, or emotional handicaps) because of which it is reasonable to conclude that such child cannot be placed with adoptive parents without providing adoption assistance. ``(e) Married Couples Must File Joint Returns.--Rules similar to the rules of paragraphs (2), (3), and (4) of section 21(e) shall apply for purposes of this section.''. (b) Conforming Amendments.--The table of sections for subpart A of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting after the item relating to section 22 the following new item: ``Sec. 23. Adoption expenses.''. (c) Effective Date.--The amendments made by this section shall apply to taxable years beginning after December 31, 1995. SEC. 3. DISTRIBUTIONS FROM CERTAIN PLANS MAY BE USED WITHOUT PENALTY TO PAY ADOPTION EXPENSES. (a) In General.--Paragraph (2) of section 72(t) of the Internal Revenue Code of 1986 (relating to exceptions to 10-percent additional tax on early distributions from qualified retirement plans) is amended by adding at the end the following new subparagraph: ``(D) Distributions from certain plans for adoption expenses.--Distributions to an individual from an individual retirement plan of so much of the qualified adoption expenses (as defined in section 23(d)) of the individual as does not exceed $2,000.''. (b) Conforming Amendment.--Subparagraph (B) of section 72(t)(2) of the Internal Revenue Code of 1986 is amended by striking ``or (C)'' and inserting ``, (C) or (D)''. (c) Effective Date.--The amendments made by this section shall apply to payments and distributions after December 31, 1995. SEC. 4. EXCLUSION OF AMOUNTS RECEIVED UNDER EMPLOYER'S ADOPTION ASSISTANCE PROGRAMS. (a) In General.--Part III of subchapter B of chapter 1 of the Internal Revenue Code of 1986 (relating to items specifically excluded from gross income) is amended by redesignating section 137 as section 138 and by inserting after section 136 the following new section: ``SEC. 137. ADOPTION ASSISTANCE PROGRAMS. ``(a) In General.--Gross income of an employee does not include amounts paid or expenses incurred by the employer for qualified adoption expenses in connection with the adoption of a child by an employee if such amounts are furnished pursuant to an adoption assistance program. ``(b) Limitations.-- ``(1) Dollar limitation.--The aggregate amount excludable from gross income under subsection (a) for all taxable years with respect to the adoption of any single child by the taxpayer shall not exceed $5,000 ($7,500, in the case of a child with special needs (as defined in section 23(d)(4))). ``(2) Income limitation.--The amount excludable from gross income under subsection (a) for any taxable year shall be reduced (but not below zero) by an amount which bears the same ratio to the amount so excludable (determined without regard to this paragraph but with regard to paragraph (1)) as-- ``(A) the amount (if any) by which the taxpayer's adjusted gross income (determined without regard to this section and sections 911, 931, and 933) exceeds $75,000, bears to ``(B) $40,000. ``(c) Adoption Assistance Program.--For purposes of this section, an adoption assistance program is a plan of an employer-- ``(1) under which the employer provides employees with adoption assistance, and ``(2) which meets requirements similar to the requirements of paragraphs (2), (3), and (5) of section 127(b). An adoption reimbursement program operated under section 1052 of title 10, United States Code (relating to armed forces) or section 514 of title 14, United States Code (relating to members of the Coast Guard) shall be treated as an adoption assistance program for purposes of this section. ``(d) Qualified Adoption Expenses.--For purposes of this section, the term `qualified adoption expenses' has the meaning given such term by section 23(d).''. (b) Conforming Amendment.--The table of sections for part III of subchapter B of chapter 1 of the Internal Revenue Code of 1986 is amended by striking the item relating to section 137 and inserting the following: ``Sec. 137. Adoption assistance programs. ``Sec. 138. Cross reference to other Acts.''. (c) Effective Date.--The amendments made by this section shall apply to taxable years beginning after December 31, 1995.
summary: Adoption Promotion Act of 1996 - Amends the Internal Revenue Code to allow an individual a tax credit of up to $5,000 for qualified adoption expenses paid or incurred during the taxable year. Provides a limitation based on modified adjusted gross income. Permits unused credit to be carried forward to the succeeding taxable year on a first-in first-out basis, but prohibits carrying forward credit to any taxable year following the fifth taxable year after the taxable year in which the credit arose. Allows distributions from an individual retirement plan to be used without penalty to pay for adoption expenses. Excludes from gross income aggregate amounts of up to $5,000 ($7,500 in the case of a child with special needs) paid or expenses incurred by the employee for qualified adoption expenses in connection with the adoption of a child if such amounts are received under an employer's adoption assistance program. Provides a limitation based on modified adjusted gross income.