98-022
Response
March 18, 1998
From:
NAME
To: "'irees@tax.state.ut.us'"
<irees@tax.state.ut.us>
Date:
3/9/98 8:34am
Subject:
Advisory Opinion
March 9, 1998
I have reviewed the state income tax instruction
booklet regarding expenses for travel which relate to qualified adoption
expenses. The instructions are somewhat
ambiguous as to the intent of what qualifies as deductible travel expenses when
calculating all qualified adoption
expenses.
This led me to contact Marleen Ritchie (297-4606) an auditor with the
Utah State Tax Commission for help. I
gave Marleen my specific situation and questions. However, after further research, Marleen could not give me
guidance. Therefore, I am requesting
further guidance from you in the form of an advisory opinion on how to treat
the incurred expenses that I have included in the narrative below. I have included a fairly detailed background
for you to form an opinion and appreciate your time in this matter.
We were selected as prospective adoptive parents
from a birthmother. This was determined
from several meetings with the birthmother, her mother, and the Department of
Social Services. After we secured and
attorney to represent both the birthmother and us, the birthmother made it
known that she would like us as the prospective adoptive parents to be involved
in on the birthing process. This
process included attending all of the birthmother's doctor appointments at
XXXXX Hospital. We live in XXXXX, Utah
and this meant we made 15 trips of 54 miles each (810 total miles) to attend
appointments. We made one trip of 93 miles to attend a natural birthing class
located in XXXXX. The class was held in
XXXXX because that was the only "teen" birthing class held. This covered two days and we incurred
lodging costs of $45.00 in addition to travel costs. We also incurred travel costs to meet with our attorney on
several occasions (108 miles).
We have a total of 1,011 miles and $45.00 in lodging
that we incurred that I am requesting an opinion on whether or not we can
include these with our other costs of adoption expense. An additional question is, do we use the
standard 31.5 cents per mile as the mileage rate? The rate
was not indicated in your instructions.
Under the federal adoption credit, the states that
"Qualified adoption expenses include reasonable and necessary adoption
fees, court costs, attorney fees and other expenses which are directly related
to the legal adoption of an eligible child." It can be argued that if we as the prospective parents were asked
to attend the doctor appointments and birthing classes as a condition of being
chosen as the adoptive parents of the birthmother's child, then by conforming
with those conditions, the travel was necessary for us to be considered as the
parents with whom the birthmother would place her child for legal
adoption. If we did not meet those
conditions, another prospective adoptive couple would have been chosen.
It should also be pointed out that if the 31.5 cents
per mile were used, the $318.47 in mileage and $45.00 in lodging (totaling
$363.47) is not an unreasonable cost to deduct where adoption costs can exceed
$15,000 very easily. In our particular
case, we are looking at deducting no more than $2,500 in total fees and costs
(includes all adoption fees, court costs, attorney costs, and all other
reasonable expenses which are directly related to the legal adoption of an
eligible child. As you can see, we are
not asking for a huge deduction of qualified expenses, but we are only trying
to offset some of the costs associated with this adoption. This is our third child we have adopted, and
our adoption expenses have always been valid and never excessive. This is the same
in this case.
The intent of the law is that costs should be
deductible in order to defray the expense that adoptive couples go through in
order to get the child because many adoptive couples do not have insurance that
reimburses the couple for adoption expenses.
If costs are reimbursed, then those costs are not deductible. The costs of adoption are far greater than
the costs a couple would incur bringing a child into the world with covered
health insurance.
I appreciate your help in this matter and look
forward to your response. If you have any further questions, you can reach me
through E-mail, or call me at work ##### or at home #####.
NAME
March
18, 1998
NAME
RE - Advisory opinion on adoption expenses
Dear NAME,
We
received your E-mail requesting information in regards to the adoption expenses
that are allowed as a deduction from the Utah income tax. Specifically, you have asked if expenses
incurred while traveling to the birthmother’s doctor appointments, to a two-day
natural birthing class, and to the adoption attorney’s office qualify as expenses
that may be deducted under Utah law.
Utah
Admin. Code R865-9I-48(A)(4) allows all actual travel costs to be deducted as
an adoption expense when they are incurred exclusively for the purposes of
completing adoption arrangements. From
a strict reading of this subpart, the travel expenses to the attorney’s office
should definitely qualify. However, a
broader interpretation of the phrase “completing adoption arrangements” could
include such activities as attending the birthmother’s doctor appointments and
birthing class. Because all the travel
expenses were incurred exclusively in activities associated with the upcoming
adoption, we determine that they qualify for the adoption expense deduction.
As
to the amount of transportation expenses that may be deducted, “actual” travel
costs are allowed. You have proposed,
as a substitute to the actual expenses, to use the 1997 federal business
standard mileage rate of 31.5 cents per mile to estimate your travel expenses. Section 1557 of the 1998 Federal Tax
Handbook (tax handbook) explains that the business standard mileage rate is
intended to reimburse employees and self-employed individuals for both
operating and fixed costs. As such, the
rate reimburses a businessperson for depreciation, insurance, and other items
that are considered legitimate business expenses. We believe the circumstances of your travel expenses are more
similar to those allowed for medical purposes, as found in Section 2151 of the
tax handbook. Here, the vehicle is used
not for business, but for a qualified personal reason, a situation that more
closely parallels your own. For
qualified personal transportation expenses, the federal standard rate is 10
cents per mile. This rate reimburses
the taxpayer for gas, oil, and parking fees and tolls, but not depreciation,
insurance, etc. For these reasons, the
Commission would encourage you to deduct actual expenses; however, the federal
standard rate for medical transportation of 10 cents per mile may be used as a
substitute to actual expenses.
As
to the amount of lodging expense that may be deducted, your $45 room rate is
the actual travel expense. Under Rule
865-9I-48(A)(4), actual travel expenses are fully deductible.
Please
contact us if you have any other questions.
Should you like a copy of this letter sent to you by mail, please
contact Shelby at 297-3902.
For
the Commission,
/s/
Joe B. Pacheco
Joe
B. Pacheco,
Commissioner
^^