What nondiscrimination rules apply to adoption assistance plans?
Adoption assistance programs are subject to nondiscrimination rules similar to the nondiscrimination rules applicable to educational assistance programs under Section 127 of the tax code — that is, the “eligibility” and “concentration” tests. (See the next two questions.) Failure to meet the nondiscrimination requirements means that benefits provided under the plan to all employees must be treated as taxable income. The IRS has not issued any guidance explaining the application of these two nondiscrimination tests to adoption assistance programs. However, it is likely that any future rules governing adoption assistance plans will be similar to the Section 127 nondiscrimination rules, which are described below. (Note that these complex rules are described in greatly simplified terms.
