BILL ANALYSIS
AB 47
Page 1
Date of Hearing: April 13, 2009
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Charles M. Calderon, Chair
AB 47 (Ma) - As Amended: March 5, 2009
Majority vote. Tax levy. Fiscal committee.
SUBJECT : Personal income taxes: credit: adoption costs
SUMMARY : Increases from $2,500 to $5,000 the maximum adoption
tax credit per minor child if the minor child is over age 12 at
the time of his/her adoption, or if the child was living in a
group home or residential treatment facility for a period of at
least six months within the 18 months preceding adoption.
Specifically, this bill :
1)Contains legislative findings noting that:
a) This bill is intended to complement the federal
Fostering Connections to Success and Increasing Adoptions
Act of 2008 (Public Law 110-351), which provides enhanced
incentive funding to states that successfully increase
adoptions of older youth from foster care;
b) The adoption of foster youth 12 years of age or older is
an important issue that needs to be addressed by the
Legislature;
c) Less than 11% of the adoptions completed annually in
California are of foster children who are 12 years of age
or older, despite the fact that older youth represent
approximately 40% of the foster care caseload;
d) This bill is intended to create additional incentives
for prospective adoptive parents to adopt older foster
youth by removing monetary barriers that might otherwise
hinder the adoption of these older foster youth; and,
e) There is evidence that when other adoption incentive
measures have been enacted, the numbers of adoptions in
California have increased.
2)Provides that the increased maximum tax credit shall be
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allowed for taxable years beginning on or after January 1,
2009, and before January 1, 2015. On January 1, 2015, the
adoption credit will revert to its current form (with a credit
cap of $2,500 per minor child).
3)Takes immediate effect as a tax levy.
EXISTING STATE LAW :
1)Allows various credits against the taxes imposed by the
Personal Income Tax (PIT) Law.
2)Allows a nonrefundable PIT credit equal to 50% of a taxpayer's
"costs" for the adoption of any minor child who:
a) Is a citizen or legal resident of the United States
(U.S.); and,
b) Was in the custody of a public agency of either this
state or a political subdivision of this state.
3)Caps the credit amount at $2,500 per minor child.
4)Provides that "costs" eligible for the credit include:
a) Fees for required services of either the Department of
Social Services (DSS) or a licensed adoption agency;
b) Travel and related expenses for the adoptive family that
are directly related to the adoption process; and,
c) Medical fees and expenses that are not reimbursed by
insurance and are directly related to the adoption process.
5)Provides that the adoption credit shall be claimed for the
taxable year in which the decree or order of adoption is
entered under Family Code Section 8612. However, the
allowable credit claimed may include any costs of that
adoption paid or incurred in any prior taxable year.
6)Provides that, in cases where the credit amount exceeds the
taxpayer's tax liability, the excess may be carried over to
reduce the taxpayer's net tax in the following year, and
succeeding years if necessary, until the total credit is
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exhausted.
EXISTING FEDERAL LAW :
1)Allows a nonrefundable credit for "qualified adoption
expenses" paid or incurred by a taxpayer. For taxable years
beginning in 2009, the credit allowed for the adoption of a
"child with special needs" is $12,150. The maximum credit
allowed for other adoptions is the amount of qualified
adoption expenses up to $12,150. The available adoption
credit begins to phase out for taxpayers with modified
adjusted gross income (AGI) in excess of $182,180 and is
completely phased out for taxpayers with modified AGI of
$222,180 or more.
2)Defines "qualified adoption expenses" as reasonable and
necessary adoption fees, court costs, attorney fees, and other
expenses directly related to the legal adoption of an
"eligible child" by the taxpayer. Specifically excluded from
the definition are expenses:
a) Incurred in violation of state or federal law;
b) Incurred in carrying out any surrogate parenting
arrangement;
c) Incurred in connection with the adoption of a child of
the taxpayer's spouse; or,
d) That are reimbursed under an employer program or
otherwise.
3)Defines an "eligible child" as any individual who has not
attained age 18, or who is physically or mentally incapable of
caring for himself/herself.
4)Defines a "child with special needs" as any child if:
a) A state has determined that the child cannot or should
not be returned to the home of his/her parents;
b) The state has determined that a specific factor or
condition exists that makes it reasonable to conclude that
the child cannot be adopted without providing adoption
assistance. Listed factors include the child's ethnic
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background, age, or membership in a minority or sibling
group; and,
c) The child is a citizen or resident of the U.S.
FISCAL EFFECT : The Franchise Tax Board (FTB) estimates that
this bill will reduce General Fund revenues by $45,000 in fiscal
years (FYs) 2009-10, 2010-11, and 2011-12.
Proposition 98 Fiscal Effect : Unknown
COMMENTS :
1)The author states, "In October 2008, Congress approved House
Resolution (HR) 6893 to improve foster care and adoption
services. Title IV(c)(2) of that legislation doubled the
amount of federal monetary incentives states receive for
completed adoptions of older foster youth. This increased
incentive is a clear message to the country that the adoption
of older foster youth is an important issue, which needs
action. AB 47 seeks to respond to HR 6893's message by
further supporting the adoption of older youth from foster
care."
2)The sponsor states, "Older youth in foster care are much less
likely to be adopted than their younger counterparts.
Although more than 40 percent of foster youth are age 12 or
older, only 11 percent of those adopted in 2006 were over 12.
Youth who do find permanent placement with loving caregivers,
such as an adoptive family, are more likely to achieve
educational success, less likely to become homeless, and
better able to transition to adulthood than youth who
emancipate from foster care." The sponsor goes on to note,
"While an adoption credit likely would not be the only
consideration for a family considering whether to adopt an
older child, services often are needed by older youth after
the adoption is finalized. These services may not be readily
available after the child leaves foster care. The higher
adoption tax credit could help ease the minds of potential
adoptive parents in these situations, and ultimately result in
a higher number of older youth being adopted from care."
3)Supporters state, "Providing a higher credit for older youth
and youth who are in a group home recognizes that these youth
often have higher service needs and it is more difficult for
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counties to find willing adoptive parents for these youth."
4)Committee Staff Comments:
a) The need is clear : Long-range outcomes for youth who
emancipate from California's foster care system are, by any
measure, disheartening. In FY 2000-01, approximately 4,355
youth emancipated from the system. DSS reports that 65% of
these youth needed safe and affordable housing at the time
of emancipation. Moreover, a 2002 study by the Center for
Social Services Research at the University of California,
Berkeley highlighted the following findings:
i) Of those young women who emancipated in 1997, 20%
became pregnant while in foster care or shortly after
emancipating from the state foster care system;
ii) Roughly 50% of females in the foster care system
received Aid to Families with Dependant
Children/Temporary Assistance for Needy Families (TANF)
Medi-Cal within one to six years of emancipation. By
comparison, approximately 6% of all females age 19-29 in
California received TANF in 1999; and,
iii) 9% of African-American males, 5% of White males, and
6% of Latino males entered the state prison system within
seven years of emancipation.
b) Legislative history of the adoption tax credit : SB 1920
(Lewis), Chapter 827, Statutes of 1994, established the
existing adoption tax credit, which was designed to
encourage adoption and reduce the state's foster care and
juvenile justice costs. It should be noted that the state
credit was enacted before the federal credit discussed
above. Since the enactment of SB 1920, several related
bills have been introduced, including the following:
i) AB 119 (Runner), introduced in the 1997-98
Legislative Session, would have provided for modified
conformity to the federal adoption tax credit. This bill
was held in the Senate Appropriations Committee.
ii) AB 763 (Bates), introduced in the 1999-2000
Legislative Session, would have provided for modified
conformity to the federal adoption tax credit for
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adoptions not eligible for the state credit. This bill
was held in the Assembly Appropriations Committee.
iii) AB 246 (Campbell), introduced in the 2001-02
Legislative Session, would have increased the adoption
credit to 100% of a taxpayer's adoption costs. This bill
did not progress beyond this committee.
iv) AB 665 (Bates), introduced in the 2001-02
Legislative Session, would have provided for modified
conformity to the federal adoption tax credit for
adoptions not eligible for the state credit. This bill
was held in the Assembly Appropriations Committee.
c) Who would this expanded credit benefit? :
i) Tax credits can either be nonrefundable or
refundable. Nonrefundable credits, like the adoption tax
credit, work only to reduce a taxpayer's tax liability.
Usually, any remaining credit amount left after reducing
the taxpayer's liability to zero can be carried forward
to offset the taxpayer's tax liability in future years.
With a refundable credit, however, the state must refund
the remaining value of the credit after tax due is
reduced to zero. It should be noted that nonrefundable
credits rarely help lower-income taxpayers because these
taxpayers have little or no tax liability to offset.
ii) Even with the expanded credit cap, the actual credit
amount would still be limited to 50% of a taxpayer's
qualifying costs. Thus, the expanded credit would only
benefit individuals who incur over $5,000 in qualifying
adoption costs. As FTB notes, "A 2008 study of the
federal child welfare information gateway indicates costs
of adopting a child from the public foster care range
from $0 - $2,500. Therefore, it is likely that few
adoptions will exceed $5,000 in costs."
d) Is this credit designed to be an incentive, a reward, or
both? :
i) Typically, the Legislature enacts tax credits to
encourage socially beneficial behavior. In the present
case, however, it is unclear whether the adoption tax
credit is intended to incentivize adoptions or whether it
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is intended to reward families that make the laudable
decision to adopt a child. Indeed, it is hard to imagine
that a state tax credit would play a determinative role
in the inherently personal decision-making process
surrounding adoption.
ii) This bill makes the expanded tax credit available
for taxable years beginning on or after January 1, 2009.
Thus, this bill would allow an expanded credit for
qualifying adoptions that occur before its passage, for
which it arguably provided no incentive.
e) What is a group home? :
i) The DSS notes:
Group homes provide the most restrictive out-of-home
placement option for children in foster care. They
provide a placement option for children with
significant emotional or behavioral problems who
require more restrictive environments. The licensed
group home is defined as a facility of any capacity
which provide[s] 24-hour non-medical care and
supervision to children in a structured environment,
with such services provided at least in part by staff
employed by the licensee. Group homes run the gamut
from large institutional type environments which
provide an intense therapeutic setting, often called
"residential treatment centers," to small home
environments which incorporate a "house parent" model.
As a result, group home placements provide various
levels of structure, supervision and services.
ii) A 2001 DSS report found that group home placements
make up approximately 11% of the foster care population.
The report also found that, while probation supervised
children represent 6% of the foster care population, they
account for 43% of the children placed in group homes.
Finally, the report found that 88% of the probation
supervised children in group homes were 15 or older,
while child welfare supervised children were usually
younger (59% under 15).
f) Proposed Amendment : This bill increases the maximum
adoption tax credit per minor child if the minor child was
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living in a "group home" or "residential treatment
facility" for a period of at least six months within the 18
months preceding adoption. This bill, however, does not
define these terms, which could lead to disagreements
between FTB and taxpayers claiming the credit. Thus, the
author wishes to take amendments in committee defining the
terms as follows:
i) "Group home" means a nondetention privately operated
residential home of any capacity; and,
ii) "Residential treatment facility" means a family
home, group care facility, or similar facility determined
by the State Public Health Officer, for 24-hour
nonmedical care of persons in need of personal services,
supervision, or assistance essential for sustaining the
activities of daily living for the protection of the
individual.
While the scope of these definitions falls outside the
expertise of committee staff, the proposed definition of
"group home" appears broader than the definition provided
by DSS. Is there perhaps a statutory definition to which
this bill could make reference?
REGISTERED SUPPORT / OPPOSITION :
Support
County Welfare Directors Association of California (co-sponsor)
John Burton Foundation for Children without Homes (co-sponsor)
Academy of California Adoption Lawyers
Butte County Department of Employment and Social Services
California Alliance of Child and Family Services
California Coalition of Foster Family Agencies
California State Association of Counties
Capitol Resource Family Impact
Child Abuse Prevention Center
City and County of San Francisco
Family Builders By Adoption
Humboldt County Department of Health and Human Services
Regional Council of rural Counties
Monterey County Board of Supervisors
Regional Council of Rural Counties
San Luis Obispo County Department of Social Services
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Service Employees International Union
Sonoma County Human Services Department
Youth Law Center
Opposition
None on file
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098