The Department of the Treasury and the Internal Revenue Service issued final regulations on July 8, 2026, identifying certain arrangements purporting to be Charitable Remainder Annuity Trusts, or CRATs, as listed transactions. The announcement, designated IR-2026-82, states that material advisors and certain participants in these listed transactions are required to file disclosures with the IRS and are subject to penalties for failure to disclose.
The final regulations describe a transaction in which taxpayers purport to eliminate ordinary income and/or capital gain on the sale of property. In the transactions described by the agencies, property with a fair market value in excess of its basis is transferred to a purported CRAT. The source gives interests in a closely-held business and assets used or produced in a trade or business as examples of such property.
Transaction described in the regulations
The purported CRAT then sells the property and uses some or all of the net proceeds to purchase a single premium immediate annuity, or SPIA. By misapplying the rules under sections 72 and 664, the taxpayer or beneficiary claims that the CRAT annuity is taxable to the recipient only to the extent of the income portion of the SPIA annuity payment.
The final regulations follow previously proposed regulations that identified certain CRAT transactions and substantially similar transactions as listed transactions for tax reporting purposes. The designation establishes the reporting framework described in the announcement for material advisors and certain participants, including the potential penalties for failing to disclose.
The Internal Revenue Service remains vigilant and is watching out for tax avoidance schemes.
IRS Chief Executive Officer Frank J. Bisignano said the agency would continue addressing abusive tax shelters and transactions. “Taxpayers should not forget that the IRS will continue to combat abusive tax shelters and transactions.”