Case Studies
Avoid Abusive Charitable Remainder Annuity Trust Schemes: New IRS Rules You Should Know
The IRS has issued final regulations labeling certain Charitable Remainder Annuity Trust (CRAT) arrangements as 'listed transactions'—this article explains the risks, obligations, and how to structure CRATs safely.
By NomadicTax Research Team • 5-8 min read • July 17, 2026
## What changed with the new CRAT rules
On **July 8, 2026**, the IRS released **final regulations** identifying certain transactions designed to appear as Charitable Remainder Annuity Trusts (CRATs) as **listed transactions**—a designation that requires extra disclosure and triggers penalties for noncompliance. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-issue-final-regulations-naming-certain-charitable-remainder-annuity-trust-transactions-as-listed-transactions?utm_source=openai)) These arrangements generally aim to avoid ordinary income or capital gains taxation by using a trust to receive property, sell it, then purchase an annuity in a way that misapplies Sections 72 and 664 of the Internal Revenue Code. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-issue-final-regulations-naming-certain-charitable-remainder-annuity-trust-transactions-as-listed-transactions?utm_source=openai))
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## What is a “listed transaction” and why it matters
- A **listed transaction** is a tax transaction that the IRS has specifically identified as having a high risk of abuse. Material advisors and return participants must **disclose participation** in listed transactions. Failure to disclose carries significant penalties. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-issue-final-regulations-naming-certain-charitable-remainder-annuity-trust-transactions-as-listed-transactions?utm_source=openai))
- These new final rules target specific CRAT schemes misused to shift investment gains or ordinary income inappropriately. If structured improperly, these CRATs can run afoul of both CRAT rules and IRS anti-avoidance. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-issue-final-regulations-naming-certain-charitable-remainder-annuity-trust-transactions-as-listed-transactions?utm_source=openai))
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## Example: Risky vs. Compliant CRAT behavior
| Scenario | Outcome |
|---|---|
| **Risky Behavior** | Transfer appreciated property to trust, sell it, then use proceeds to buy single premium immediate annuity, treating all payments as annuity income—minimizing gains or ordinary income. Under new final regs, labeled a listed transaction. |
| **Compliant Structure** | Transfer property, sell it within the trust, but distribute gains properly under trust income, with full reporting; avoid constructing an annuity that masks distributions. Proper basis, trust accounting rules followed. |
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## What you must do if using or advising on CRATs
- If involved in a transaction that resembles the proscribed CRAT scheme, ensure **full disclosure** under the listed transaction rules. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-issue-final-regulations-naming-certain-charitable-remainder-annuity-trust-transactions-as-listed-transactions?utm_source=openai))
- Keep detailed documentation of basis, fair market value, trust income source, and distributions.
- Consult with tax professionals to avoid the required penalties for failure to disclose.
- Review whether your trust is or could be characterized as a CRAT for other benefits (deduction, etc.) and whether structure aligns with legal requirements.
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## Ramifications & planning tips
- Material advisors who promote such arrangements will have increased liability and responsibility for revealing participation.
- Taxpayers can no longer assume CRAT-based tax minimization strategies will be ignored by IRS—they now carry regulatory teeth.
- If already in an affected scheme, consider corrective disclosures.
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## Bottom line
If you're considering or using a CRAT, this isn’t a time for experimentation. Ensure your structure is transparent, compliant, and fully documented; otherwise, you face disclosure requirements and penalties that could outweigh any perceived tax savings.