Case Studies

CRAT Abuse Under Final Regulations: What Trusts & Donors Must Know

New IRS rules treat certain Charitable Remainder Annuity Trust transactions as listed transactions—this article explores what qualifies, what disclosure is required, and how to structure compliant giving.

By NomadicTax Research Team • 5-8 min read • July 16, 2026

## What the New Regulations Do In the announcement **IR-2026-82** on July 8, 2026, the IRS issued **final regulations** naming certain transactions purporting to be **Charitable Remainder Annuity Trusts (CRATs)** as **listed transactions**.([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 arrangements that attempt to eliminate ordinary income or capital gain improperly—for example, via sales of property transferred into a trust and then using proceeds to buy a single-premium immediate annuity (SPIA).([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 Is a Listed Transaction? A listed transaction is an abusive tax-avoidance scheme identified by the IRS. Participants and material advisors in such transactions must **disclose** their participation to the IRS, or face **significant 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)) This requirement under IRS rules includes reporting under disclosure requirements in IRC Section 6011 and penalties for non-compliance under Sections 6694, 6695 depending on advisor involvement. ## Common Abusive Features of CRAT-Type Schemes - Property (with value above basis) is transferred to a trust masquerading as a CRAT. | - The trust then sells it, buys a SPIA, and the income portion of annuity payments is **misapplied**, reducing taxable income or capital gains. | - These tactics attempt to change character of income in ways not supported by law.([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)) ## Compliance Requirements Going Forward - **Disclosures**: Anyone participating in such a listed transaction—donor, trustee, material advisor—must file appropriate disclosures with the IRS. Failure to report triggers penalties. | - **Due diligence**: Trusts must ensure that CRATs and similar arrangements are structured carefully and follow the standards under section 664 and related provisions. | - **Material advisors**: Subject to enhanced requirements for disclosure and possibly civil penalties. | ## Example Scenario Suppose John transfers a piece of real estate (value above his basis) into a trust which then sells the property, invests in a SPIA, and claims that only the income portion of annuity payments are taxable thanks to SPIA mechanics. Under the new regulations, this arrangement would be classified as a **listed transaction**, meaning John and his advisors must disclose it to the IRS, or risk penalties. ## Things You Should Do If Considering CRATs - Consult **trust and tax attorneys** to review any CRAT arrangement for abnormal features that might expose it to being a listed transaction. | - Ensure that the **remainder interest** donated to charity meets standard valuation and timing rules. | - Keep accurate records of **basis**, **dates**, **trust documentation** and ensure SPIA purchases and annuity payments are properly reported. | **Summing up:** While CRATs are legitimate tools for charitable giving and income planning, the IRS’s new listing of certain CRAT-type transactions demands caution. Structuring and reporting correctly is essential to avoid penalties in what the IRS now treats as potential abuse.