Auditor Seal


Office of the State Auditor of Missouri
Claire McCaskill


February 16, 2004

Report No. 2004-13

More than 90 percent of tax credits meant to help with the adoption of Missouri children, funded mostly international adoptions instead

Although the $2 million in Missouri Special Needs Adoption Tax Credits may have originally been intended to help residents adopt Missouri children, auditors found more than 90 percent of the credits issued involved adoptions of international children.The following highlights our findings:

$2 million in credits are in high demand

The tax credit, which is capped at $2 million, is so popular all credits are claimed within the first few weeks of availability.Any Missouri resident who adopts a special needs child can receive a tax credit of up to $10,000 for nonrecurring adoption expenses (such as travel to pick up the child) for each adoption.Legislation passed in 2003, but later vetoed, would have eliminated the cap.Eliminating the cap could ultimately cost the state $5 million, at a minimum, based on claims filed the first day tax credits were available in fiscal year 2004.

Current tax credit law does not restrict use to Missouri children

Nothing in the current law restricts the credit's use to Missouri children.Ifthe Missouri program was restricted to Missouri-born or resident special needs children, approximately $1.8 million in tax credits would be available for such adoptions, auditors found.A similar federal tax credit is restricted to U.S. citizens or residents.

All adoptable children in state custody are considered "special needs"

Division of Family Services (DFS) officials said all the adoptable children in state custody are considered special needs children, which totaled 2,187 children at the end of 2002.Whether restricting the credit to Missouri children would actually increase adoptions of children in state custody is difficult to determine, auditors found.First,the current credit must be used for "nonrecurring" expenses, and many persons adopting Missouri's special needs children can already receive a state adoption subsidy to cover such expenses. But if the credit could offset other expenses, the credit may be used more often by persons wanting to adopt Missouri's special needs children.Secondly, inadequate tax credit record keeping by the DFS made it impossible for auditors to determine how many families willing to adopt a resident Missouri special needs child could not use the tax credit because the cap had been reached.

Small number of metropolitan adoption firms assisted with adoptions involving most tax credits

Adoption firms operating in the St. Louis area claimed about 90 percent of the tax credits issued in 2004.For example in 2003, 190 of the 275 adoptions using the tax credit were coordinated by only 10 firms, with more than 100 of these adoptions handled by two St. Louis adoption firms.This situationhas partly occurred due to population and demographic factors.In addition, several DFS staff in smaller counties said they had never heard ofthe tax credit program and suggested they receive training on it.

Administration of credit could be more consistent and better documented

Auditors found adequate supporting documentation was not always properly maintained for a period of five years as required.Special needs adoption tax credit claim forms are not filed in a standard or consistent manner.Department officials are not properly verifying claim form information.

Complete Audit Report

Missouri State Auditor's Office