IRS Newsroom, “IRS has begun issuing automatic refunds to individuals who claimed Adoption Tax Credit carryforward from prior years,” IR-2026-123 (Oct. 16, 2026).

The Internal Revenue Service has announced a significant administrative shift regarding the treatment of the adoption tax credit carryforward. This development follows a clarification from the Treasury Department regarding the interpretation of the Working Families Tax Cuts and its specific impact on the adoption tax credit. For tax professionals managing client files for the 2025 tax year, this represents a critical departure from standard carryforward mechanics, specifically regarding the availability of refundable credits.

The Treasury Interpretation and the 2025 Exception

Under the standard application of 26 U.S. Code § 23(c), taxpayers are permitted to carry forward unused portions of the adoption credit to succeeding taxable years, provided the carryforward does not exceed five years. However, a new Treasury Department interpretation has introduced a temporary, one-year exception. For tax year 2025 only, adoption tax credit carryforwards from prior tax years (2020-2024) are eligible to increase the amount of the adoption tax credit that is refundable in 2025, subject to the $5,000 per qualifying child limitation. This is a notable departure from the typical non-refundable nature of the credit under 26 U.S. Code § 23(a)(4), which states that “so much of the credit allowed under paragraph (1) as does not exceed $5,000 shall be treated as a credit allowed under subpart C and not as a credit allowed under this subpart.”

Automated Refund Mechanisms and Administrative Relief

To mitigate the financial burden on eligible families, the IRS has opted for an automated administrative adjustment rather than requiring taxpayers to file amended returns. According to IRS Chief Executive Officer Frank J. Bisignano, “By issuing refunds without requiring eligible families to file an amended return, the IRS is helping reduce the financial burden on those who decided to adopt a child into their family.”

The IRS will proactively adjust affected taxpayers’ accounts to reflect this change and issue any resulting refunds. Taxpayers should be advised that they generally do not need to take action to receive this additional credit. The IRS intends to notify taxpayers of these adjustments, generally within 30 days, informing them of the amount and whether the adjustment resulted in a refund or was applied toward another tax or non-tax debt.

Compliance and Verification Considerations

While the IRS is moving toward automation, practitioners should remain vigilant regarding specific account statuses. Taxpayers who filed their 2025 returns before April 15, 2026, will generally receive the adjustment automatically. However, taxpayers who filed under an extension or those whose accounts contain “identity theft indicators, freezes, dependency conflicts or other issues will be reviewed later in 2026 after the return is processed or the account issue is resolved.”

Professionals should instruct clients to review any IRS notices carefully, compare them against the 2025 tax return, and maintain these documents for their permanent tax records. For real-time monitoring, the IRS encourages the use of the IRS Individual Online Account to view tax records and check refund status securely.

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