Case Studies

Charitable Remainder Annuity Trusts (CRATs) Under IRS Scrutiny: New Listed Transaction Rules

New IRS regulations target certain CRAT schemes abused to avoid ordinary income or capital gains; advisors must disclose and could face penalties.

By NomadicTax Research Team • 5-8 min read • July 19, 2026

## What Changed and Why It’s Important On **July 8, 2026**, the Treasury and IRS issued **final regulations** labeling certain **Charitable Remainder Annuity Trust** (CRAT) arrangements as **listed transactions**. These are schemes that improperly recharacterize or eliminate ordinary income or capital gains through misuse of annuity trust 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)) ## Key Features of the Final Regulations - Transactions where property with a fair market value **above basis**—for instance, shares or business interests—is transferred to a CRAT, which then sells the property and uses proceeds to buy a single-premium immediate annuity (SPIA), are targeted. Exploitation arises when **only the income portion** of SPIA payments is taxed, while gains are masked.([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 schemes are now **listed transactions**, meaning they must be disclosed to the IRS and carry strict penalties for advisors or participants failing to report.([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 ### For taxpayers: - If you’re involved in such a CRAT + SPIA structure, **full transparency** is mandatory. - You must report the transaction, or risk facing penalties, audits, or disallowed tax treatment. ### For material advisors and promoters: - Required to **file disclosures** with the IRS. - Exposed to **penalties** if they fail to report or misrepresent the transaction. ## Actionable Steps to Comply 1. **Review all existing CRAT arrangements**—especially if paired with SPIAs or other trust conversion strategies. 2. **Maintain documentation** showing basis, value, and how each payment is taxed. 3. If you’re an advisor: ensure proper **disclosure filings** are made under listed transactions rules. 4. Consult with a tax professional before setting up any new CRAT-based strategy. Given the final regulations, preemptive structuring is essential. ## Example Scenario > **Emma** sold property (value $500K, basis $200K) transferring it into a CRAT. The CRAT sells the property and uses proceeds to purchase a SPIA. Past strategy claimed only the income portion of SPIA payments was taxable. Under the new rules, Emma must report this as a listed transaction. Her advisor is required to file disclosures. Tax benefits may be re-evaluated, and penalties may apply. ## Bottom Line The IRS is tightening enforcement around CRAT-based tax sheltering. These final regulations send a clear message: the CRAT + SPIA maneuver will no longer bypass ordinary income and capital gains rules. Transparency and proper structure aren’t optional—they’re now mandated.