Case Studies
Avoiding Abusive Scheme Risks: Reporting Obligations for CRATs Declared as Listed Transactions
New IRS rules designate certain Charitable Remainder Annuity Trust schemes as listed transactions with strict reporting and penalty consequences for those attempting to avoid recognizing income.
By NomadicTax Research Team • 5-8 min read • August 12, 2026
## What Did the IRS Decide?
The IRS and Treasury issued **final regulations** identifying certain **Charitable Remainder Annuity Trusts (CRATs)**—when used in abusive ways—as **listed transactions**. This means specific disclosures are required, and failures to comply can result in substantial 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))
## What Constitutes an Abusive CRAT Arrangement
**Key features** of flagged transactions include:
- Transferring property (e.g. closely held business interests or trade-property with gains) to a CRAT and then selling that property.
- Using the proceeds to purchase a **single premium immediate annuity (SPIA)**, and structuring it such that distributions are taxed only on the income portion—mistakenly avoiding recognition of entire gains.
## Listing Requirements & Penalties
- **Material advisors** and certain participants must **disclose** these transactions to IRS as listed under their own responsibilities.
- Non-disclosure can trigger severe **penalties**, both for the advisor AND recipients.
## Examples to Watch Out For
- A business owner gives an asset with low basis to a CRAT, which then sells it, avoiding capital gains by claiming only income portion is taxable.
- A family trust set up a CRAT purely to shift taxes improperly using SPIA gains.
## How to Stay Compliant
- Always consult tax counsel before using a CRAT in situations involving property sales and annuities.
- If involved as a material advisor or participant, determine whether disclosure obligation kicks in under the new regulations.
- Maintain rigorous documentation of basis, valuation, transaction terms, and annuity structure.
## Why It Matters
- IRS is increasing enforcement of schemes that attempt to misapply sections 72 and 664.
- Transparency is key: being a listed transaction means being under higher scrutiny and liable for stricter penalties.
- These rules protect those doing legitimate charitable giving, while limiting abuse.
## Key Takeaways
- Not all CRATs are affected—only those structured with certain abusive sale-SPIA models
- If engaging in or advising on transactions involving CRATs + property sales + annuities, review new rules immediately
- Disclosures required: failure to report is a high-risk exposure