Entity Setup
Understanding IRS Rules on Charitable Remainder Annuity Trust (CRAT) Listed Transactions
New IRS regulations now classify certain CRAT setups as listed transactions, increasing reporting obligations and exposure to penalties for non-disclosure.
By NomadicTax Research Team • 5-8 min read • August 5, 2026
## What’s Changed in the New CRAT Regulations
On **July 9, 2026**, the IRS issued **final regulations** that identify certain **Charitable Remainder Annuity Trusts (CRATs)** or arrangements similar to them as **“listed transactions.”** These are specific types of tax transactions flagged for potential abuse. ([irs.gov](https://www.irs.gov/irb/2026-31_irb?utm_source=openai)) Listed transactions require specific disclosures by material advisors and participants—or risk 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))
## Who Is Affected
* **Material advisors** who promote or facilitate the setup of suspect CRAT transactions.
* **Participants** in such CRATs or similar trusts—anyone who gains a tax benefit or submits a return reflecting such a CRAT transaction.
* Not affected: **Charitable organizations** that are solely remainder beneficiaries and do not engage in promotional activities or receive compensation for advice. ([irs.gov](https://www.irs.gov/irb/2026-31_irb?utm_source=openai))
## Key Examples & Risky Structures
The rules target arrangements where:
- A taxpayer transfers property with **fair market value exceeding its tax basis** into a trust that claims to be a CRAT.
- The trust **sells that property** and uses proceeds to buy a **single-premium immediate annuity (SPIA)**.
- The annuity or income is then treated improperly to avoid ordinary income or capital gains tax using SPIA's income portion arguments. ([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 Being a Listed Transaction Implies
* Participants must **disclose** the transaction to the IRS under section 6011.
* Failure to disclose by participants or material advisors may lead to **significant penalties**, up to statutory maximums.
* Increased IRS scrutiny—such transactions will be on the IRS radar going forward.
## Practical Impact and Compliance Tips
| Step | What You Should Do |
|------|-------------------|
| Evaluate existing CRATs | Review any CRATs you’re involved in. If they follow the risky structure, consider revamping or unwinding. |
| Consult with a tax advisor | Seek specialized legal or tax counsel if considering a CRAT that involves property contributions, SPIAs, or aggressive income tiering. |
| Disclosures | If you qualify as a participant or material advisor under these regulations, make sure to include required forms (disclosure statements) on your returns. |
## Example Scenario
Suppose Michael transfers shares in a closely-held business, valued at $1M, with a basis of $200,000 into a trust that calls itself a CRAT. The trustee sells the shares and buys a SPIA. Michael expects that distributions will be taxed only as SPIA income, avoiding recognition of capital gains. Under the new regulations, that setup is a **listed transaction**—Michael would have to disclose it, and could face penalties if he fails to.
## Effective Date and Deadlines
These final regulations become **effective July 9, 2026**. ([irs.gov](https://www.irs.gov/irb/2026-31_irb?utm_source=openai)) Material advisors and participants should assess their obligations **immediately**, especially if the trust was formed or trades executed after that date.
## How This Changes Planning
* Be very cautious about CRAT structures that may look abusive; even unintentional missteps can bring trouble.
* Document everything: basis, fair market values, how the trust invests, and how distributions are characterized.
* If you see a disclosed transaction on another filer’s return involving a similar structure, understand how the IRS views that exposure.
These final rules are part of the IRS’s broader crackdown on tax avoidance schemes. With clear rules and structures now codified, taxpayers and advisors must align planning and reporting with both letter and spirit of the new regulations.