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)
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)
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)
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)
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.