Income Tax

Signed 12/30/02






Petitioner, )

) Appeal No. 01-1869

v. )




COMMISSION, ) Judge: Phan


Respondent. )




Jane Phan, Administrative Law Judge


For Petitioner: Petitioner

For Respondent: Dan Engh, Manager, Income Tax Auditing

Steve Nelson, Senior Auditor




This matter came before the Utah State Tax Commission for an Initial Hearing pursuant to the provisions of Utah Code Ann. '59-1-502.5, on November 5, 2002.

Petitioners are appealing an audit deficiency of additional income tax in the amount of $$$$$ and the interest accrued thereon for the tax year 1998. The Statutory Notice of Audit Change was issued on November 1, 2001. The deficiency is the result of Respondent's disallowance of a portion of the deduction made by Petitioners for adoption expenses. The amount of the adoption expenses claimed by Petitioners as a deduction on their 1998 income tax return was $$$$$. Respondent reduced the amount of the allowable deduction to $$$$$. However, at the hearing, Respondent's representative indicated that they would allow and additional $$$$$ deduction, for a Pre-Placement Adoptive Home Study fee which had been paid during the 1997 tax year. This brought the total amount allowed by Respondent to $$$$$. In determining the amount which they found to be allowable, Respondent allowed only the cashiers check for which Petitioner was able to find a copy, in the amount of the $$$$$, the attorney fees as listed on the invoice, and the $$$$$ home study fee. Respondent disallowed the remaining $$$$$ paid to the birth mother because Petitioner was unable to submit a copy of the check and Respondent was not convinced that all the funds paid to the birth mother were all for allowable expenses.

It was Petitioner's position that the entire $$$$$ which they claimed on their return should be allowed for the deduction for adoption expenses. They had paid to $$$$$ to the birth mother for her medical expenses, living expenses, counseling and other necessary expenses. Petitioner had paid these amounts via cashiers check and was able to locate a copy of only one of the checks which was for $$$$$. Petitioner did provide a copy of an Affidavit of Costs and Expenses which had been submitted to the Third Judicial District Court as part of the adoption proceeding. The affidavit indicated that Petitioners had paid $$$$$ to the birth mother and in doing so had complied with all the terms of Utah Code Ann. 76-7-203. Petitioner stated that the judge in the adoption proceeding approved the expenses based on the affidavit and other documents submitted $$$$. Petitioners were able to provided Respondent a copy of an invoice from their attorney and for the $$$$ pre-placement home study.

The affidavit submitted in the adoption proceeding did not break out how much of the $$$$$ paid to the birth mother was for medical expenses and how much for other expenses. The affidavit merely stated the $$$$$ was for "medical care of the natural mother and minor child, together with counseling and other necessary expenses for the benefit of the birth mother" and it goes on to indicate that the payments complied with the terms of Utah Code Ann. 76-7-203. Utah Code Ann. 76-7-203 limits what can be paid to a birth mother in relation to the adoption of a child and makes it a crime for the birth mother or guardian to accept any unauthorized amount. According to that section the birth mother can accept payment for actual and reasonable legal expenses, maternity expenses, related medical or hospital expenses as well as necessary living expenses. The expenses allowed at Utah Code Ann. 76-7-203 are very similar to those in the statute and rule providing for the deduction for adoption expenses. The Commission notes that neither code section specifically mentions expenses for counseling which is one of the times listed on the affidavit. However, this was approved by the judge in the divorce proceeding to by in compliance with Utah Code Ann. 76-7-203 and also seems the total amount seems reasonable considering the cost of medical care and living expenses which are allowable as deductions.


There shall be subtracted from federal taxable income of a resident or nonresident individual: . . . (c) the amount of adoption expenses which, for purposes of this Subsection (2)(c), means any actual medical and hospital expenses of the mother of the adopted child which are incident to the child's birth and any welfare agency, child placement services, legal and other fees or costs relating to the adoption. (Utah Code Ann. Sec. 59-10-114(2)(c).)

A. For purposes of the deduction for adoption expenses under Section 59-10-114, adoption expenses include: 1. medical expenses associated with prenatal care, child birth, and neonatal care; 2. fees paid to reimburse the state under Section 35A-3-308; 3. fees paid to an attorney or placement service for arranging the adoption; 4. all actual travel costs incurred exclusively for th purpose of completing adoption arrangements; and 5. living expenses of the birth mother if paid by the adoptive parents as part of their adoption expenses and if in conformance with Section 76-7-203. (Utah Admin. Rule R865-9I-48.)


The Commission is willing to accept the affidavit filed by Petitioner in the court proceeding as evidence of the adoption expenses and allow the full the deduction as claimed by Petitioner on their 1998 individual income tax return. Based on the foregoing, the audit is abated. It is so ordered.

This decision does not limit a party's right to a Formal Hearing. However, this Decision and Order will become the Final Decision and Order of the Commission unless any party to this case files a written request within thirty (30) days of the date of this decision to proceed to a Formal Hearing. Such a request shall be mailed to the address listed below and must include the Petitioner's name, address, and appeal number:

Utah State Tax Commission

Appeals Division

210 North 1950 West

Salt Lake City, Utah 84134



Failure to request a Formal Hearing will preclude any further appeal rights in this matter.

DATED this 30th day of December , 2002.



Jane Phan

Administrative Law Judge





The Commission has reviewed this case and the undersigned concur in this decision.

DATED this 30th day of December , 2002.



Pam Hendrickson R. Bruce Johnson

Commission Chair Commissioner





Palmer DePaulis Marc B. Johnson

Commissioner Commissioner