text: SECTION 1. SHORT TITLE.
  
      This Act may be cited as the ``Adoption Promotion Act of 1996''.
  
  SEC. 2. CREDIT FOR ADOPTION EXPENSES.
  
      (a) In General.--Subpart A of part IV of subchapter A of chapter 1 
  of the Internal Revenue Code of 1986 (relating to nonrefundable 
  personal credits) is amended by inserting after section 22 the 
  following new section:
  
  ``SEC. 23. ADOPTION EXPENSES.
  
      ``(a) Allowance of Credit.--In the case of an individual, there 
  shall be allowed as a credit against the tax imposed by this chapter 
  for the taxable year the amount of the qualified adoption expenses paid 
  or incurred by the taxpayer with respect to the adoption of a child.
      ``(b) Limitations.--
              ``(1) Dollar limitation.--The aggregate amount of qualified 
          adoption expenses which may be taken into account under 
          subsection (a) with respect to the adoption of a child shall 
          not exceed $5,000 ($7,500, in the case of a child with special 
          needs).
              ``(2) Income limitation.--The amount allowable as a credit 
          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 allowable (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 (determined without regard to 
                  sections 911, 931, and 933) exceeds $65,000, bears to
                      ``(B) $30,000.
              ``(3) Denial of double benefit.--
                      ``(A) In general.--No credit shall be allowed under 
                  subsection (a) for any expense for which a deduction or 
                  credit is allowable under any other provision of this 
                  chapter.
                      ``(B) Grants.--No credit shall be allowed under 
                  subsection (a) for any expense to the extent that funds 
                  for such expense are received under any Federal, State, 
                  or local program.
                      ``(C) Reimbursement.--No credit shall be allowed 
                  under subsection (a) for any expense to the extent that 
                  such expense is reimbursed and the reimbursement is 
                  excluded from gross income under section 138.
      ``(c) Carryforwards of Unused Credit.--If the credit allowable 
  under subsection (a) for any taxable year exceeds the limitation 
  imposed by section 26(a) for such taxable year reduced by the sum of 
  the credits allowable under this subpart (other than this section), 
  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) Qualified adoption expenses.--The term `qualified 
          adoption expenses' means--
                      ``(A) reasonable and necessary adoption fees, court 
                  costs, attorney fees, and other expenses--
                              ``(i) which are directly related to, and 
                          the principal purpose of which is for, the 
                          legal and finalized adoption of an eligible 
                          child by the taxpayer, and
                              ``(ii) which are not incurred in violation 
                          of State or Federal law or in carrying out any 
                          surrogate parenting arrangement, and
                      ``(B) in the case of the adoption of a child with 
                  special needs, any other expenses.
              ``(2) Expenses for adoption of spouse's child not 
          eligible.--The term `qualified adoption expenses' shall not 
          include any expenses in connection with the adoption by an 
          individual of a child who is the child of such individual's 
          spouse.
              ``(3) Eligible child.--The term `eligible child' means any 
          individual who has not attained age 18 as of the time of the 
          adoption.
              ``(4) Child with special needs.--The term `child with 
          special needs' means any eligible child if--
                      ``(A) a State has determined that the child cannot 
                  or should not be returned to the home of his parents, 
                  and
                      ``(B) such State has determined that there exists 
                  with respect to the child a specific factor or 
                  condition (such as his 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 it is reasonable to conclude that such child 
                  cannot be placed with adoptive parents without 
                  providing adoption assistance.
      ``(e) Married Couples Must File Joint Returns.--Rules similar to 
  the rules of paragraphs (2), (3), and (4) of section 21(e) shall apply 
  for purposes of this section.''.
      (b) Conforming Amendments.--The table of sections for subpart A of 
  part IV of subchapter A of chapter 1 of the Internal Revenue Code of 
  1986 is amended by inserting after the item relating to section 22 the 
  following new item:
  
                                ``Sec. 23. Adoption expenses.''.
      (c) Effective Date.--The amendments made by this section shall 
  apply to taxable years beginning after December 31, 1995.
  
  SEC. 3. DISTRIBUTIONS FROM CERTAIN PLANS MAY BE USED WITHOUT PENALTY TO 
                PAY ADOPTION EXPENSES.
  
      (a) In General.--Paragraph (2) of section 72(t) of the Internal 
  Revenue Code of 1986 (relating to exceptions to 10-percent additional 
  tax on early distributions from qualified retirement plans) is amended 
  by adding at the end the following new subparagraph:
                      ``(D) Distributions from certain plans for adoption 
                  expenses.--Distributions to an individual from an 
                  individual retirement plan of so much of the qualified 
                  adoption expenses (as defined in section 23(d)) of the 
                  individual as does not exceed $2,000.''.
      (b) Conforming Amendment.--Subparagraph (B) of section 72(t)(2) of 
  the Internal Revenue Code of 1986 is amended by striking ``or (C)'' and 
  inserting ``, (C) or (D)''.
      (c) Effective Date.--The amendments made by this section shall 
  apply to payments and distributions after December 31, 1995.
  
  SEC. 4. EXCLUSION OF AMOUNTS RECEIVED UNDER EMPLOYER'S ADOPTION 
                ASSISTANCE PROGRAMS.
  
      (a) In General.--Part III of subchapter B of chapter 1 of the 
  Internal Revenue Code of 1986 (relating to items specifically excluded 
  from gross income) is amended by redesignating section 137 as section 
  138 and by inserting after section 136 the following new section:
  
  ``SEC. 137. ADOPTION ASSISTANCE PROGRAMS.
  
      ``(a) In General.--Gross income of an employee does not include 
  amounts paid or expenses incurred by the employer for qualified 
  adoption expenses in connection with the adoption of a child by an 
  employee if such amounts are furnished pursuant to an adoption 
  assistance program.
      ``(b) Limitations.--
              ``(1) Dollar limitation.--The aggregate amount excludable 
          from gross income under subsection (a) for all taxable years 
          with respect to the adoption of any single child by the 
          taxpayer shall not exceed $5,000 ($7,500, in the case of a 
          child with special needs (as defined in section 23(d)(4))).
              ``(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 (determined without regard to 
                  this section and sections 911, 931, and 933) exceeds 
                  $75,000, bears to
                      ``(B) $40,000.
      ``(c) Adoption Assistance Program.--For purposes of this section, 
  an adoption assistance program is a plan of an employer--
              ``(1) under which the employer provides employees with 
          adoption assistance, and
              ``(2) which meets requirements similar to the requirements 
          of paragraphs (2), (3), and (5) of section 127(b).
  An adoption reimbursement program operated under section 1052 of title 
  10, United States Code (relating to armed forces) or section 514 of 
  title 14, United States Code (relating to members of the Coast Guard) 
  shall be treated as an adoption assistance program for purposes of this 
  section.
      ``(d) Qualified Adoption Expenses.--For purposes of this section, 
  the term `qualified adoption expenses' has the meaning given such term 
  by section 23(d).''.
      (b) Conforming Amendment.--The table of sections for part III of 
  subchapter B of chapter 1 of the Internal Revenue Code of 1986 is 
  amended by striking the item relating to section 137 and inserting the 
  following:
  
                                ``Sec. 137. Adoption assistance programs.
                                ``Sec. 138. Cross reference to other 
                                          Acts.''.
      (c) Effective Date.--The amendments made by this section shall 
  apply to taxable years beginning after December 31, 1995.
target: Adoption Promotion Act of 1996 - Amends the Internal Revenue Code to allow an individual a tax credit of up to $5,000 for qualified adoption expenses paid or incurred during the taxable year.  Provides a limitation based on modified adjusted gross income.    Permits unused credit to be carried forward to the succeeding taxable year on a first-in first-out basis, but prohibits carrying forward credit to any taxable year following the fifth taxable year after the taxable year in which the credit arose. 
  Allows distributions from an individual retirement plan to be used without penalty to pay for adoption expenses. 
  Excludes from gross income aggregate amounts of up to $5,000 ($7,500 in the case of a child with special needs) paid or expenses incurred by the employee for qualified adoption expenses in connection with the adoption of a child if such amounts are received under an employer's adoption assistance program.  Provides a limitation based on modified adjusted gross income.
feat_title: Adoption Promotion Act of 1996