Compliance
Avoiding Abusive CRAT Schemes: IRS Final Regulations Naming Certain Transactions Listed Transactions
New final regulations now identify specified Charitable Remainder Annuity Trust (CRAT) transactions as "listed transactions", triggering stricter reporting and higher penalties for misuse.
By NomadicTax Research Team • 5-8 min read • July 21, 2026
## What Changed: IRS Declares Certain CRAT Transactions as Listed Transactions
On July 8, 2026, the IRS issued final regulations under IR-2026-82 identifying **certain CRAT transactions** used to improperly eliminate ordinary income or capital gains as “listed transactions.” These include arrangements that:
- Transfer property with fair market value exceeding basis (like closely held business interests or business assets) into a purported CRAT;
- Then have the CRAT sell that property and use proceeds to purchase a **single premium immediate annuity (SPIA)**;
- Misapply sections 72 and 664 to treat part of the SPIA payments as tax-free or lower-taxed income rather than recognizing the full ordinary income or capital gain. ([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))
## Implications for Taxpayers & Advisors
- **Disclosure requirement**: CRATs or those acting as material advisors in these transactions must file disclosure statements with the IRS; failure to disclose triggers strict 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))
- **Penalties increase**: Because these are officially designated “listed transactions,” the IRS now has statutory authority to impose higher penalties on both participants and material advisors.
- **Audit risk**: Transactions involving CRATs structured in the manners above are more likely to be selected for IRS scrutiny. Any deviation or insufficient documentation heightens exposure.
## Actionable Advice
- If you operate a CRAT or advise clients considering these transactions:
1. **Evaluate past CRAT arrangements** and any past actions that resemble the newly listed transactions. If so, consider voluntary disclosure and corrective action.
2. **Ensure full reporting**: File all relevant forms accurately—Form 8886 or others as required—when participating in a listed transaction. Maintain supporting documentation (appraisals, agreements, SPIA contracts, valuation analyses).
3. **Avoid misapplication of sections 72/664**: Be explicit in trust documents about income, gain, annuity portions, and tax characterization. Use reliable legal/tax advice in structuring income streams and distributions.
4. **Stay compliant with basis reporting**: Keep track of basis in contributed property. When transferring property, clearly document contributions vs value to avoid overvaluation.
## Example Scenario
John transfers real property worth $500,000 into a CRAT. Basis is $100,000. The CRAT sells the property, buys an SPIA for the full net proceeds, and John claims that much of the income from the SPIA is tax-free. Under the new regulations this is a listed transaction. He must disclose it, or face penalties. If his advisor facilitated it without warning him, both face liability.
## Compliance Checklist
| Task | Required? | Notes |
|---|---|---|
| Assess whether your CRAT transaction meets criteria for listed transaction | Yes | Transactions where gain > basis and SPIA purchase often meet it |
| File required disclosures | Yes | Material advisors & participants must report |
| Preserve documentation | Yes | Appraisals, contracts, financial statements |
| Consult tax counsel before structuring new trust transactions | Yes | To avoid unwanted implications |
## Summary
Abusive CRAT/SPIA arrangements are now officially recognized as listed transactions by the IRS. That means greater transparency, stricter penalties, and greater risk for those who misuse charitable remainder annuity trusts. If you're involved in or considering these structures, you’ll want to audit past practices, ensure correct reporting, and adjust future trust planning to avoid noncompliance.