[House Report 107-64]
[From the U.S. Government Publishing Office]



107th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     107-64

======================================================================



 
                         HOPE FOR CHILDREN ACT

                                _______
                                

  May 15, 2001.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

    Mr. Thomas, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                             together with

                            ADDITIONAL VIEWS

                        [To accompany H.R. 622]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Ways and Means, to whom was referred the 
bill (H.R. 622) to amend the Internal Revenue Code of 1986 to 
expand the adoption credit, and for other purposes, having 
considered the same, report favorably thereon with an amendment 
and recommend that the bill as amended do pass.

                                CONTENTS

                                                                   Page
  I. Summary and Background...........................................2
        A. Purpose and Summary...................................     2
        B. Background and Need for Legislation...................     3
        C. Legislative History...................................     3
 II. Explanation of the Bill..........................................3
        A. Extension and Expansion of the Adoption Credit and the 
            Exclusion From Income for Adoption Assistance 
            Payments.............................................     3
III. Vote of the Committee............................................5
 IV. Budget Effects of the Bill.......................................5
        A. Committee Estimates of Budgetary Effects..............     5
        B. Statement Regarding New Budget Authority and Tax 
            Expenditures Budget Authority........................     6
        C. Cost Estimate Prepared by the Congressional Budget 
            Office...............................................     6
  V. Other Matters To Be Discussed Under the Rules of the House.......8
        A. Committee Oversight Findings and Recommendations......     8
        B. Statement of General Performance Goals and Objectives.     8
        C. Constitutional Authority Statement....................     8
        D. Information Relating to Unfunded Mandates.............     8
        E. Applicability of House Rule XXI 5(b)..................     8
        F. Tax Complexity Analysis...............................     8
 VI. Changes in Existing Law Made by the Bill as Reported.............9
VII. Additional Views................................................13

  The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Hope for Children Act''.

SEC. 2. INCREASED TAX INCENTIVES FOR ADOPTIONS.

  (a) Increase in Maximum Benefit.--Section 23(b)(1) of the Internal 
Revenue Code of 1986 (relating to dollar limitation) is amended by 
striking ``$5,000'' and all that follows and inserting ``$10,000.''.
  (b) Benefits Made Permanent for All Children.--Paragraph (2) of 
section 23(d) of such Code is amended to read as follows:
          ``(2) Eligible child.--The term `eligible child' means any 
        individual who--
                  ``(A) has not attained age 18, or
                  ``(B) is physically or mentally incapable of caring 
                for himself.''.
  (c) Increase in Phaseout.--Clause (i) of section 23(b)(2)(A) of such 
Code (relating to income limitation) is amended by striking ``$75,000'' 
and inserting ``$150,000''.
  (d) Credit Allowed Against Alternative Minimum Tax.--
          (1) In general.--Subsection (b) of section 23 of such Code is 
        amended by adding at the end the following new paragraph:
          ``(4) Limitation based on amount of tax.--The credit allowed 
        under subsection (a) for any taxable year shall not exceed the 
        excess of--
                  ``(A) the sum of the regular tax liability (as 
                defined in section 26(b)) plus the tax imposed by 
                section 55, over
                  ``(B) the sum of the credits allowable under this 
                subpart (other than this section) and section 27 for 
                the taxable year.''.
          (2) Conforming amendments.--
                  (A) Subsection (c) of section 23 of such Code is 
                amended--
                          (i) by striking ``section 26(a)'' and 
                        inserting ``subsection (b)(4)'', and
                          (ii) by striking ``reduced by the sum of the 
                        credits allowable under this subpart (other 
                        than this section and section 1400C)''.
                  (B) Paragraph (1) of section 26(a) of such Code is 
                amended by inserting ``(other than section 23)'' after 
                ``this subpart''.
                  (C) Section 904(h) of such Code is amended by 
                inserting ``(other than section 23)'' after 
                ``chapter''.
                  (D) Subsection (d) of section 1400C of such Code is 
                amended by inserting ``and section 23'' after ``this 
                section''.
  (e) Amendments Related to Employer-Provided Adoption Assistance.--
          (1) Paragraph (1) of section 137(b) of such Code is amended 
        by striking ``$5,000'' and all that follows and inserting 
        ``$10,000.''.
          (2) Subparagraph (A) of section 137(b)(2) of such Code is 
        amended by striking ``$75,000'' and inserting ``$150,000''.
          (3) Section 137 of such Code is amended by striking 
        subsection (f) (relating to termination).
  (f) Effective Date.--
          (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to taxable years 
        beginning after December 31, 2001.
          (2) Expenses paid or incurred in prior years.--Expenses paid 
        or incurred during any taxable year beginning before January 1, 
        2002, may be taken into account in determining the credit under 
        section 23 of the Internal Revenue Code of 1986 for a taxable 
        year beginning on or after such date only to the extent the 
        aggregate of such expenses does not exceed the applicable 
        limitation under section 23(b)(1) of such Code as in effect on 
        the day before the date of the enactment of this Act.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    The bill, H.R. 622, as amended (the ``Hope for Children 
Act''), extends and expands the tax benefits available to 
families adopting children.
    The bill provides net tax reductions of over $973 million 
over fiscal years 2001-2006. This will defray the costs 
associated with adopting children.

                 B. Background and Need for Legislation

    The provisions approved by the Committee will defray the 
costs associated with adopting children. The estimated revenue 
effects of the provisions comply with the most recent 
Congressional Budget Office revisions of budget surplus 
projections.

                         C. Legislative History


                            Committee Action

    The Committee on Ways and Means marked up the provisions of 
the bill on May 9, 2001, and reported the provisions, as 
amended, on May 9, 2001, by a voice vote, with a quorum 
present.

                      II. EXPLANATION OF THE BILL


  A. Extension and Expansion of the Adoption Credit and the Exclusion 
              From Income for Adoption Assistance Payments


         (Sec. 2 of the bill and secs. 23 and 137 of the Code)


                              Present Law

Tax credit

            In general
    A tax credit is allowed for qualified adoption expenses 
paid or incurred by a taxpayer. The maximum credit is $5,000 
per eligible child ($6,000 for a special needs child). An 
eligible child is an individual (1) who has not attained age 18 
or (2) is physically or mentally incapable of caring for 
himself or herself. A special needs child is an eligible child 
who is a citizen or resident of the United States who a State 
has determined: (1) cannot or should not be returned to the 
home of the birth parents; and (2) has a specific factor or 
condition (such as the child's 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 the child cannot be 
placed with adoptive parents without adoption assistance.
    Qualified adoption expenses are reasonable and necessary 
adoption fees, court costs, attorneys fees, and other expenses 
that are: (1) directly related to, and the principal purpose of 
which is for, the legal adoption of an eligible child by the 
taxpayer; (2) not incurred in violation of State or Federal 
law, or in carrying out any surrogate parenting arrangement; 
(3) not for the adoption of the child of the taxpayer's spouse; 
and (4) not reimbursed (e.g., by an employer).
    Qualified adoption expenses may be incurred in one or more 
taxable years, but the credit may not exceed $5,000 per 
adoption ($6,000 for a special needs child). The adoption 
credit is phased out ratably for taxpayers with modified 
adjusted gross income between $75,000 and $115,000. Modified 
adjusted gross income is the sum of the taxpayer's adjusted 
gross income plus amounts excluded from income under Code 
sections 911, 931, and 933 (relating to the exclusion of income 
of U.S. citizens or residents living abroad; residents of Guam, 
American Samoa, and the Northern Mariana Islands; and residents 
of Puerto Rico, respectively).
    The adoption credit for special needs children is 
permanent. The adoption credit with respect to other children 
does not apply to expenses paid or incurred after December 31, 
2001.
            Alternative minimum tax
    Through 2001, the adoption credit generally reduces the 
individual's regular income tax and alternative minimum tax. 
For taxable years beginning after December 31, 2001, the 
otherwise allowable adoption credit is allowed only to the 
extent that the individual's regular income tax liability 
exceeds the individual's tentative minimum tax, determined 
without regard to the minimum tax foreign tax credit.

Exclusion from income

    A maximum $5,000 exclusion from the gross income of an 
employee is allowed for qualified adoption expenses paid or 
reimbursed by an employer under an adoption assistance program. 
The maximum excludible amount is $6,000 for special needs 
adoptions. The exclusion is phased out ratably for taxpayers 
with modified adjusted gross income between $75,000 and 
$115,000. Modified adjusted gross income is the sum of the 
taxpayer's adjusted gross income plus amounts excluded from 
income under Code sections 911, 931, and 933 (relating to the 
exclusion of income of U.S. citizens or residents living 
abroad; residents of Guam, American Samoa, and the Northern 
Mariana Islands; and residents of Puerto Rico, respectively). 
For purposes of this exclusion, modified adjusted gross income 
also includes all employer payments and reimbursements for 
adoption expenses whether or not they are taxable to the 
employee. The exclusion does not apply for purposes of payroll 
taxes. Adoption expenses paid or reimbursed by the employer 
under an adoption assistance program are not eligible for the 
adoption credit. A taxpayer may be eligible for the adoption 
credit (with respect to qualified adoption expenses he or she 
incurs) and also for the exclusion (with respect to different 
qualified adoption expenses paid or reimbursed by his or her 
employer).
    The exclusion from income does not apply to amounts paid or 
expenses incurred after December 31, 2001.

                           Reasons for Change

    The Committee believes that the adoption credit and 
exclusion have been successful in reducing the after-tax cost 
of adoption to affected taxpayers. For this reason, the 
Committee believes that both these benefits should be extended 
permanently. The Committee noted that almost 50 percent of the 
tax returns filed in 1998 that received income tax benefits for 
adoption expenses reported total adoption expenses (including 
employer reimbursements) in excess of $5,000. Further, 
approximately 25 percent of the tax returns filed in 1998 that 
received income tax benefits for adoption expenses reported 
total adoption expenses (including employer reimbursements) in 
excess of $10,000. In the case of special needs adoptions, 
approximately 29 percent of the tax returns filed in 1998 that 
received income tax benefits for adoption expenses reported 
total adoption expenses (including employer reimbursements) in 
excess of $6,000. The Committee believes that increasing the 
size of both the adoption credit and exclusion and expanding 
the number of taxpayers who qualify for the tax benefits will 
encourage more adoptions and allow more families to afford 
adoption. The Committee, however, is aware that families 
adopting special needs children may incur continuing expenses 
after the adoption is finalized that are not eligible for these 
tax benefits. The Committee will continue to search for ways to 
help alleviate these post-adoption expenses. Finally, the 
Committee believes that the alternative minimum tax should not 
be allowed to reduce the ability of adopting families to claim 
the adoption credit.

                        Explanation of Provision

Tax credit

    The bill permanently extends the adoption credit for 
children other than special needs children. The maximum credit 
is increased to $10,000 per eligible child, including special 
needs children. The beginning point of the income phase-out 
range is increased to $150,000 of modified adjusted gross 
income. Therefore, the adoption credit is phased out for 
taxpayers with modified adjusted gross income of $190,000 or 
more. Finally, the adoption credit is allowed against the 
alternative minimum tax permanently.

Exclusion from income

    The exclusion from income for employer-provided adoption 
assistance is extended permanently. The maximum exclusion is 
increased to $10,000 per eligible child, including special 
needs children. The beginning point of the income phase-out 
range is increased to $150,000 of modified adjusted gross 
income. Therefore, the exclusion is not available to taxpayers 
with modified adjusted gross income of $190,000 or more.

                             Effective Date

    Generally, the provision is effective for taxable years 
beginning after December 31, 2001. Qualified expenses paid or 
incurred in taxable years beginning on or before December 31, 
2001, remain subject to the present-law dollar limits.

                       III. VOTE OF THE COMMITTEE

    Ordered reported by voice vote, with quorum present.

                     IV. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d)(2) of the rule XIII of the 
Rules of the House of Representatives, the following statement 
is made concerning the effects on the budget of the revenue 
provisions of the bill, H.R. 622, as reported.
    The bill is estimated to have the following effects on 
budget receipts for fiscal years 2001-2006:

  ESTIMATED BUDGET EFFECTS OF H.R. 622, THE ``HOPE FOR CHILDREN ACT,'' AS REPORTED BY THE COMMITTEE ON WAYS AND
                                          MEANS; FISCAL YEARS 2002-2006
                                            [In millions of dollars]
----------------------------------------------------------------------------------------------------------------
            Provision                   Effective        2002     2003      2004      2005      2006     2002-06
----------------------------------------------------------------------------------------------------------------
Increase Adoption Credit and the   tyba 12/31/01 \1\       -47      -174      -224      -254      -275      -973
 Adoption Assistance Program
 Exclusion to $10,000 for Non-
 Special Needs Adoptions and
 Special Needs Adoptions;
 Permanently Extend Both the
 Adoption Credit for Non-Special
 Needs Adoptions and the Adoption
 Assistance Program Exclusion;
 Increase the Beginning Point of
 the Income Phase-Out Range to
 $150,000 of Modified AGI for
 Both the Adoption Credit and the
 Adoption Assistance Program
 Exclusion; and Permanently Allow
 the Adoption Credit Against the
 AMT.
----------------------------------------------------------------------------------------------------------------
Note. Details may not add to totals due to rounding.

Legend for ``Effective'' column: tyba = taxable years beginning after.

\1\ Qualified expenses paid or incurred beginning on or before December 31, 2001, would remain subject to the
  present-law dollar limits ($5,000/$6,000).

B. Statement Regarding New Budget Authority and Tax Expenditures Budget 
                               Authority

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves no new or increased budget authority. The 
Committee further states that the revenue reducing income tax 
provision involves increased tax expenditures. (See amounts in 
table in Part IV.A., above.)

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, requiring a cost estimate 
prepared by the CBO, the following statement by CBO is 
provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                      Washington, DC, May 11, 2001.
Hon. William ``Bill'' M. Thomas,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 622, the Hope for 
Children Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Erin 
Whitaker.
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).
    Enclosure.

H.R. 622--Hope for Children Act

    Summary: H.R. 622 would modify the tax credit allowed for 
adoption expenses paid by a taxpayer and the exclusion from 
gross income allowed for adoption expenses paid or reimbused by 
an employer under an adoption assistance program. The bill 
would extend permanently the adoption tax credit for children 
other than special needs children, and increase the maximum 
adoption credit from $5,000 per eligible child, or $6,000 for a 
special needs child, to $10,000 per child. The level of 
modified adjusted gross income (AGI) at which the credit would 
begin to phase out would increase from $75,000 to $150,000. The 
bill also would extend the exclusion from gross income 
permanently, increase the maximum exclusion to $10,000, and 
increase the level of modified AGI at which the exclusion would 
begin to phase out from $75,000 to $150,000.
    The Congressional Budget Office and the Joint Committee on 
Taxation (JCT) estimate that enacting the bill would reduce 
revenues by $47 million in fiscal year 2002, by $973 million 
over the 2002-2006 period, and by about $2.6 billion over the 
2002-2011 period. Because the bill would affect receipts, pay-
as-you-go procedures would apply.
    H.R. 622 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA) 
and would not affect the budgets of state, local, or tribal 
governments.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 622 is shown in the following table. 
All estimates of the revenue effects of the bill were provided 
by JCT.

----------------------------------------------------------------------------------------------------------------
                                                                    By fiscal year, in millions of dollars--
                                                               -------------------------------------------------
                                                                  2002      2003      2004      2005      2006
----------------------------------------------------------------------------------------------------------------
                                               CHANGES IN REVENUES

Estimated Revenues............................................       -47      -174      -224      -254      -275
----------------------------------------------------------------------------------------------------------------

    Pay-as-you-go considerations: The Balanced Budget and 
Emergency Deficit Control Act sets up pay-as-you-go procedures 
for legislation affecting direct spending or receipts. The net 
changes in governmental receipts that are subject to pay-as-
you-go procedures are shown in the following table. For the 
purposes of enforcing pay-as-you-go procedures, only the 
effects in the current year, the budget year, and the 
succeeding four years are counted.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                     By fiscal year, in millions of dollars--
                                                         -----------------------------------------------------------------------------------------------
                                                           2001   2002     2003     2004     2005     2006     2007     2008     2009     2010     2011
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in outlays......................................                                          Not applicable
Changes in receipts.....................................      0     -47     -174     -224     -254     -275     -288     -302     -317     -332     -348
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Intergovernmental and private-sector impact: H.R. 622 
contains no intergovernmental or private-sector mandates as 
defined in UMRA and would not affect the budgets of state, 
local, or tribal governments.
    Estimate prepared by: Erin Whitaker.
    Estimate approved by: G. Thomas Woodward, Assistant 
Director for Tax Analysis.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE


          A. Committee Oversight Findings and Recommendations

    With respect to clause 3(c)(1) of rule XIII of the Rules of 
the House of Representatives (relating to oversight findings), 
the Committee advises that it was a result of the Committee's 
oversight review concerning the tax burden on individual 
taxpayers that the Committee concluded that it is appropriate 
and timely to enact the revenue provisions included in the bill 
as reported.

        B. Statement of General Performance Goals and Objectives

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
bill contains no measure that authorizes funding, so no 
statement of general performance goals and objectives for which 
any measure authorizes funding is required.

                 C. Constitutional Authority Statement

    With respect to clause 3(d)(1) of the rule XIII of the 
Rules of the House of Representatives (relating to 
Constitutional Authority), the Committee states that the 
Committee's action in reporting this bill is derived from 
Article I of the Constitution, Section 8 (``The Congress shall 
have Power To lay and collect Taxes, Duties, Imposts and 
Excises . . .''), and from the 16th Amendment to the 
Constitution.

              D. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Act of 1995 (P.L. 104-4).
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

                E. Applicability of House Rule XXI 5(b)

    Rule XXI 5(b) of the Rules of the House of Representatives 
provides, in part, that ``A bill or joint resolution, 
amendment, or conference report carrying a Federal income tax 
rate increase may not be considered as passed or agreed to 
unless so determined by a vote of not less than three-fifths of 
the Members voting, a quorum being present.'' The Committee has 
carefully reviewed the provisions of the bill, and states that 
the provisions of the bill do not involve any Federal income 
tax rate increases within the meaning of the rule.

                       F. Tax Complexity Analysis

    Section 4022(b) of the Internal Revenue Service Reform and 
Restructuring Act of 1998 (the ``IRS Reform Act'') requires the 
Joint Committee on Taxation (in consultation with the Internal 
Revenue Service and the Department of the Treasury) to provide 
a tax complexity analysis. The complexity analysis is required 
for all legislation reported by the House Committee on Ways and 
Means, the Senate Committee on Finance, or any committee of 
conference if the legislation includes a provision that 
directly or indirectly amends the Internal Revenue Code and has 
widespread applicability to individuals or small businesses.
    The staff of the Joint Committee on Taxation has determined 
that a complexity analysis is not required under section 
4022(b) of the IRS Reform Act because the bill contains no 
provisions that amend the Internal Revenue Code and that have 
``widespread applicability'' to individuals or small 
businesses.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

INTERNAL REVENUE CODE OF 1986

           *       *       *       *       *       *       *



Subtitle A--Income Taxes

           *       *       *       *       *       *       *


CHAPTER 1--NORMAL TAXES AND SURTAXES

           *       *       *       *       *       *       *


Subchapter A--Determination of Tax Liability

           *       *       *       *       *       *       *


PART IV--CREDITS AGAINST TAX

           *       *       *       *       *       *       *



Subpart A--Nonrefundable Personal Credits

           *       *       *       *       *       *       *



SEC. 23. ADOPTION EXPENSES.

  (a) * * *
  (b) Limitations.--
          (1) Dollar limitation.--The aggregate amount of 
        qualified adoption expenses which may be taken into 
        account under subsection (a) for all taxable years with 
        respect to the adoption of a child by the taxpayer 
        shall not exceed [$5,000 ($6,000, in the case of a 
        child with special needs).] $10,000.
          (2) Income limitation.--
                  (A) In general.--The amount allowable as a 
                credit under subsection (a) for any taxable 
                year (determined without regard to subsection 
                (c)) 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--
                          (i) the amount (if any) by which the 
                        taxpayer's adjusted gross income 
                        exceeds [$75,000] $150,000, bears to
                          (ii) $40,000.

           *       *       *       *       *       *       *

          (4) Limitation based on amount of tax.--The credit 
        allowed under subsection (a) for any taxable year shall 
        not exceed the excess of--
                  (A) the sum of the regular tax liability (as 
                defined in section 26(b)) plus the tax imposed 
                by section 55, over
                  (B) the sum of the credits allowable under 
                this subpart (other than this section) and 
                section 27 for the taxable year.
  (c) Carrryforwards of Unused Credit.--If the credit allowable 
under subsection (a) for any taxable year exceeds the 
limitation imposed by [section 26(a)] subsection (b)(4) for 
such taxable year [reduced by the sum of the credits allowable 
under this subpart (other than this section and section 
1400C)], 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) * * *
          [(2) Eligible child.--The term ``eligible child'' 
        means any individual--
                  [(A) who--
                          [(i) has not attained age 18, or
                          [(ii) is physically or mentally 
                        incapable of caring for himself, and
                  [(B) in the case of qualified adoption 
                expenses paid or incurred after December 31, 
                2001, who is a child with special needs.]
          (2) Eligible child.--The term ``eligible child'' 
        means any individual who--
                  (A) has not attained age 18, or
                  (B) is physically or mentally incapable of 
                caring for himself.

           *       *       *       *       *       *       *


SEC. 26. LIMITATION BASED ON TAX LIABILITY; DEFINITION OF TAX 
                    LIABILITY.

  (a) Limitation Based on Amount of Tax.--
          (1) In general.--The aggregate amount of credits 
        allowed by this subpart (other than section 23) for the 
        taxable year shall not exceed the excess (if any) of--
                  (A) * * *

           *       *       *       *       *       *       *


Subchapter B--Computation of Taxable Income

           *       *       *       *       *       *       *


PART III--ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

           *       *       *       *       *       *       *


SEC. 137. ADOPTION ASSISTANCE PROGRAMS.

  (a) * * *
  (b) Limitations.--
          (1) Dollar limitation.--The aggregate of the amounts 
        paid or expenses incurred which may be taken into 
        account under subsection (a) for all taxable years with 
        respect to the adoption of a child by the taxpayer 
        shall not exceed [$5,000 ($6,000, in the case of a 
        child with special needs).] $10,000.
          (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 exceeds 
                [$75,000] $150,000, bears to
                  (B) $40,000.

           *       *       *       *       *       *       *

  [(f) Termination.--This section shall not apply to amounts 
paid or expenses incurred after December 31, 2001.]

           *       *       *       *       *       *       *


 Subchapter N--Tax Based on Income From Sources Within or Without the 
United States

           *       *       *       *       *       *       *


PART III--INCOME FROM SOURCES WITHOUT THE UNITED STATES

           *       *       *       *       *       *       *



Subpart A--Foreign Tax Credit

           *       *       *       *       *       *       *



SEC. 904. LIMITATION ON CREDIT.

  (a) * * *

           *       *       *       *       *       *       *

  (h) Coordination With Nonrefundable Personal Credits.--In the 
case of an individual, for purposes of subsection (a), the tax 
against which the credit is taken is such tax reduced by the 
sum of the credits allowable under subpart A of part IV of 
subchapter A of this chapter (other than section 23). This 
subsection shall not apply to taxable years beginning during 
2000 or 2001.

           *       *       *       *       *       *       *


Subchapter W--District of Columbia Enterprise Zone

           *       *       *       *       *       *       *


SEC. 1400C. FIRST-TIME HOMEBUYER CREDIT FOR DISTRICT OF COLUMBIA.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Carryover of Credit.--If the credit allowable under 
subsection (a) exceeds the limitation imposed by section 26(a) 
for such taxable year reduced by the sum of the credits 
allowable under subpart A of part IV of subchapter A (other 
than this section and section 23), such excess shall be carried 
to the succeeding taxable year and added to the credit 
allowable under subsection (a) for such taxable year.

           *       *       *       *       *       *       *


                         VII. ADDITIONAL VIEWS

    We support the underlying goal of H.R. 622 to help adoptive 
families meet their expenses, and we agree that additional tax 
relief can promote that goal. Helping families afford the cost 
of adopting children into loving homes is clearly a worthwhile 
policy.
    However, we are concerned that H.R. 622, as reported by the 
Committee, does little to promote the adoption of the many 
special needs children in foster care. Under current law, the 
adoption tax credit is limited to ``qualified adoption 
expenses,'' which are defined primarily as court costs and 
attorney's fees. This definition severely limits the 
utilization of the credit by an overwhelming majority of 
families adopting special needs children. Because State foster 
care programs cover most of the legal expenses associated with 
adopting a child from the foster care system, many adoptive 
families of special needs children have few qualified adoption 
expenses. However, these families have other significant 
adoption-related costs, such as home and vehicle modifications, 
out-of-pocket medical expenses, and in some cases, lost income 
from work. These expenses are neither reimbursed by the State, 
nor eligible for the current adoption tax credit.
    A report from the U.S. Department of the Treasury released 
in October, 2000, found that only 15% of all special needs 
adoptions received any benefit from the current adoption tax 
credit. Of those few families adopting special needs children 
that did benefit from the adoption tax credit, 71% reported 
expenses under the current $6,000 limit for eligible expenses 
incurred in connection with a special needs adoption. 
Therefore, simply raising the limit on eligible expenses to 
$10,000 will do next to nothing to help families adopting 
special needs children. In fact, by increasing the maximum 
adoption credit for all adoptions without some specific 
accommodation for special needs adoptions, we may be taking a 
step backwards. The Treasury report warned that a ``decrease in 
the relative price of adopting foreign children compared to 
adopting children with special needs decreases the relative 
incentive to adopt children with special needs.''
    As of March 31, 1999, there were 560,000 children in our 
nation's foster care system. Of these, 122,000 were waiting to 
be adopted (their case plan calls for adoption because they are 
unable to return home). The vast majority of these children are 
classified as having special needs, meaning they are more 
difficult to place for adoption because of their age, medical 
condition, membership in a minority, being one of a group of 
siblings awaiting adoption together, or because of a physical, 
mental or emotional handicap. These special needs children are 
waiting in line to be adopted, whereas other healthy babies and 
young children have prospective parents waiting in line for 
them. Any policy designed to promote adoption should recognize 
this simple fact.
    According to preliminary estimates from the Joint Committee 
on Taxation, providing more meaningful tax relief to families 
adopting special needs children would have a relatively modest 
cost compared to the underlying bill. We therefore look forward 
to working with the Chairman to improve this legislation as it 
relates to special needs adoptions. We are encouraged by the 
Chairman's pledge to carefully consider improvements on this 
issue as this bill continues through the legislative process.

                                   Ben Cardin.
                                   Sander Levin.
                                   John Lewis.
                                   Jim McDermott.
                                   Charles B. Rangel.
                                   Robert T. Matsui.
                                   Lloyd Doggett.
                                   Earl Pomeroy.

                                
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