Tax Planning
CRATs Under Scrutiny: New Regulations Designate Certain Arrangements as Listed Transactions
New IRS final regulations redefine certain Charitable Remainder Annuity Trust transactions as reportable listed transactions — altering obligations for trusts, donors, and advisors.
By NomadicTax Research Team • 5-8 min read • August 1, 2026
## What changed for CRATs in July 2026?
On **July 9, 2026**, the IRS issued final regulations under §1.6011-15 labeling certain **Charitable Remainder Annuity Trust** (CRAT) arrangements, or substantially similar transactions, as **"listed transactions"**. These are types of transactions considered to have risk for tax avoidance or evasion and are subject to heavier reporting and penalty requirements. ([irs.gov](https://www.irs.gov/irb/2026-31_irb?utm_source=openai))
## Which CRAT arrangements are now considered listed?
Under the new rules, these arrangements typically involve:
- Donor grants property with **fair market value exceeding basis** (often appreciated property) into a trust ([irs.gov](https://www.irs.gov/irb/2026-31_irb?utm_source=openai));
- The trust then **sells the contributed property**, and uses part or all of the proceeds to purchase a **single-premium immediate annuity (SPIA)**; and
- Beneficiary treats the annuity payments as if coming from the SPIA’s income portion **only**, trying to avoid recognition of ordinary income or capital gains consistent with the misapplication of rules under 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))
## Reporting obligations & penalties
- These CRAT transactions are now **reportable**, meaning taxpayers and **material advisors** must file appropriate disclosures under §§ 6011, 6111, and 6112. Non-compliance may lead to **significant penalties**. ([irs.gov](https://www.irs.gov/irb/2026-31_irb?utm_source=openai));
- Organizations designated as **charitable remainder beneficiaries** are generally **not treated as material advisors or participants** solely by their beneficiary status, unless they provide material assistance or advice beyond acceptance of remainder interest. ([irs.gov](https://www.irs.gov/irb/2026-31_irb?utm_source=openai));
- The rules become **effective July 9, 2026**, so any arrangement fitting the criteria from that date forward must comply. ([irs.gov](https://www.irs.gov/irb/2026-31_irb?utm_source=openai))
## Why this matters for donors and advisors
- **Donors**: Prior tax planning involving contributing appreciated assets to CRATs and then using SPIAs to route income may not avoid reported gain or ordinary income—tax consequences are sharper now.
- **Material advisors**: If you structure or advise on these CRAT transactions, strong disclosure duties arise. Failure to disclose properly can trigger penalties and tax shelter liabilities.
## Practical scenarios
- **Example**: Sarah donates appreciated real estate into a CRAT, which then sells the property and buys a SPIA. She tries to treat her income payments as if all are “income-portion” from SPIA only. Under these rules, HSBC must report as a listed transaction, and Sarah may face loss of the desired treatment (e.g. gain recognition), plus reporting burdens.
- **Example for advisors**: A firm that routinely drafts SPIA-based CRATs should assess whether its CRATs conduct actions that could trigger listing; ensure full disclosure, document advice given, and consider risk in marketing materials.
## Action steps
- **Review existing CRATs**: Examine any CRATs created or used since July 9, 2026, or that are being considered now—and check whether they match listed transaction criteria.
- **Ensure proper disclosure**: If dealing with listed transactions, file **Form 8886** or other required forms. Be truthful about material advisors and participation.
- **Consult legal/tax counsel**: Because the area is technical—income tiers, basis, trust sale, annuity purchase—specialized structuring is required to avoid unintended misclassification.
- **Adjust planning strategies**: Alternative charitable trusts like CRUTs or charitable lead trusts, or delayed gifting strategies might be preferable depending on asset type and donor goals.
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A final word: While CRATs remain useful tools in charitable planning, abusing their structure to avoid income or capital gain reporting is now clearly disallowed in certain forms. Transparency through reporting—and careful planning—is essential going forward.