Entity Setup
Navigating Charitable Remainder Annuity Trusts After Recent IRS Regulations
New final regulations classify certain CRAT transactions as listed transactions—bringing disclosure requirements and penalties for abusive arrangements.
By NomadicTax Research Team • 5-8 min read • July 17, 2026
## What Are These New CRAT Regulations?
On July 8, 2026, the Treasury and IRS issued **final regulations** formally identifying certain transactions claimed 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 generally arrangements where taxpayers attempt to eliminate ordinary income or capital gains by transferring property into a CRAT and then using a Single Premium Immediate Annuity (SPIA) to receive funds in a way that minimizes taxes. ([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 Counts as a “Listed Transaction”?
Transactions flagged under this regulation include those where:
- Property with fair market value greatly exceeding basis (e.g. business interests or depreciated assets) is transferred into a CRAT.
- The CRAT sells property and invests proceeds into a SPIA.
- Taxpayer misapplies §§ 72 and 664 to shift tax treatment, often turning what should be taxable gain or income into mostly nontaxable payments. ([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))
As a listed transaction, participation must be disclosed to the IRS via Form 8886 by material advisors and certain participants, and failure to do so can trigger 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))
## Why This Matters
- **Increased compliance risk**: If you engage in or are involved in such CRAT/SPIA schemes, you're now under much higher scrutiny.
- **Disclosure obligations**: Advisors must report with Form 8886, and those who participated may be penalized if they fail to do so.
- **Taxing treatment**: Abusive uses of CRATs can no longer hide ordinary income or capital gain under trust distributions without consequences.
## How to Evaluate Your Setup or Client’s Trust
1. Review existing CRAT arrangements: Are there SPIA components? Is property being sold and immediately converted to annuity?
2. Check basis vs current FMV: Large discrepancies may raise red flags.
3. Ensure recordkeeping: Get appraisals, trust deeds, investment schedules—any documentation to justify tax treatment.
4. Consult specialized tax counsel: The gray area between lawful and abusive is technical; legal advice is critical.
## Example
Suppose a taxpayer owns real property with basis of \$100,000 and fair market value of \$1,000,000. They transfer it to a trust, which sells and buys a SPIA annuity, claiming only the income portion of interest over time is taxed. The new regulation makes such a scheme a **listed transaction** requiring disclosure and penalization if not transparent.
### Key Takeaway
If you work with CRATs or similar structures, the light is brighter—IRS can now force disclosure, impose penalties, and treat some trusts as tax avoidance tools. Act proactively to align with the law; avoid setups that could look like abusive transactions under the new rules.