Case Studies
Charitable Remainder Annuity Trusts (CRATs): Avoiding Abusive Schemes
New regulations target certain CRAT arrangements aiming to eliminate ordinary income or capital gains — material advisors now on notice.
By NomadicTax Research Team • 5-8 min read • July 16, 2026
## What Did the IRS Change?
In **IR-2026-82** (July 8, 2026), the Treasury and IRS issued **final regulations** classifying certain **Charitable Remainder Annuity Trust (CRAT)** transactions and similar arrangements as **listed transactions** for tax disclosure and penalty purposes. ([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))
The IRS flagged deals where taxpayers use CRATs to shift property, sell it inside a trust, then purchase a **Single Premium Immediate Annuity (SPIA)**. The strategy often attempts to treat gain or income as minimally taxable. Under the new rules, those kinds of transactions must be disclosed; material advisors face 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))
## Key Implications
- A **listed transaction** is one the IRS considers potentially abusive or harmful — its use triggers strict disclosure, recordkeeping, and penalty risk.
- **Material advisors** (those who structure or promote such transactions) must file disclosures under sections 6011 and 6111.
- **Participants** in the transactions also may face penalties if they fail to disclose involvement. ([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 CRAT Transactions Are Affected?
Transactions where:
- Property with value above its basis is transferred to a CRAT;
- CRAT sells it and proceeds are used to purchase a SPIA or similar annuity instrument;
- The structure is used to miscalculate or mischaracterize ordinary income or gain on sale via SP-66 rules, sections 72 and 664. ([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 are now explicitly condemned under these final regulations.
## What Taxpayers Should Do Now
- If you're considering a **CRAT strategy**, ensure it's not similar to the problematic structure described above.
- Speak with a **specialized tax advisor** early to confirm whether your trust structure avoids “listed transaction” status.
- If you’ve already entered one of these transactions in past years, review whether you need to file disclosures and whether penalties might apply.
## Actionable Examples
**Example 1:** A donor transfers appreciated business interests (basis: $100, value: $500) into a CRAT, the CRAT sells them, and immediately buys a SPIA, distributing annuity payments. Under new regs, this is a listed transaction. Must disclose. May face penalties.
**Example 2:** A more straightforward CRAT where the annuity payments come from income generated by assets held over time, not a quick flip and annuity purchase, likely avoids being a listed transaction—but detailed facts matter.
## Practical Advice
- **Maintain documentation** showing basis, sale activity, trust investment flow if income is generated outside the SPIA-style swap.
- **Calculate alternatives** to CRATs for charitable giving — like CRUTs or donor advised funds — especially if your structure may attract IRS scrutiny.
**Category:** Case Studies
**Actionable Tip:** Before entering any CRAT, describe and map out the proposed cash flows and tax treatment in writing. Get a peer review or external opinion to ensure compliance under these final regs.