Treasury and IRS Finalize CRAT Listed Transaction Rules Targeting Abusive Gain-Elimination Structures

Final regulations were recently issued identifying certain arrangements claiming to be Charitable Remainder Annuity Trusts as listed transactions. These regulations describe a transaction in which taxpayers claim to eliminate ordinary income and/or capital gain on the sale of property.

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. For details see the news release.

Treasury and the IRS have finalized regulations treating certain abusive charitable remainder annuity trust arrangements as listed transactions, with disclosure obligations for material advisors and certain participants.

What the rules target

The final regulations focus on CRAT arrangements where a grantor contributes appreciated property, the trust sells that property, the proceeds are used to buy an annuity, and the beneficiary reports the payments in a way that improperly avoids the tiered distribution rules under section 664(b). Treasury and the IRS say these arrangements are designed to eliminate ordinary income and/or capital gain on the sale of property.

Filing obligations

Participants in listed transactions generally disclose them on Form 8886, and material advisors disclose on Form 8918. The final regulations also state that penalties apply for failure to disclose, which is why this is a significant compliance item for both taxpayers and advisors.

Effective date

The regulations are effective July 9, 2026. The IRS news release and Federal Register notice both indicate that only the abusive CRAT fact pattern described in the regulations, and substantially similar transactions, are covered; ordinary CRATs are not automatically listed transactions.

Treasury is not attacking legitimate CRAT planning

A strong client-facing angle is that Treasury is not attacking legitimate CRAT planning, but rather a specific monetization strategy that attempts to turn built-in gain into tax-favored annuity payments. For a tax audience, the practical takeaway is to review any CRAT structure involving appreciated property, post-sale annuity purchases, and reporting positions under section 72 versus section 664(b) before filing disclosures or taking a return position.

Have IRS Tax Problems?

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Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
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or Toll Free at 888 8TAXAID (888-882-9243)

Sources:

1.       https://www.irs.gov/newsroom/treasury-irs-issue-final-regulations-naming-certain-charitable-remainder-annuity-trust-transactions-as-listed-transactions    

2.      https://www.federalregister.gov/documents/2026/07/09/2026-13851/charitable-remainder-annuity-trust-listed-transaction  

3.      https://kpmg.com/us/en/taxnewsflash/news/2026/07/final-regs-charitable-remainder-annuity-trust-transactions-listed-transactions.html   

4.      https://www.govinfo.gov/content/pkg/FR-2026-07-09/pdf/2026-13851.pdf 

5.       https://www.irs.gov/forms-pubs/about-form-8886

6.      https://www.law.cornell.edu/cfr/text/26/1.664-1

7.       https://www.govinfo.gov/content/pkg/FR-2026-07-09/html/2026-13851.htm

8.      https://www.journalofaccountancy.com/news/2026/jul/irs-designates-certain-crat-arrangements-as-listed-transactions/

9.      https://www.taxnotes.com/research/federal/proposed-regulations/proposed-regs-give-listed-transaction-status-crat-transactions/7jbm9

10.   https://news.bloombergtax.com/daily-tax-report/irs-issues-final-regulations-identifying-certain-crat-transactions-as-listed-transactions

11.    https://www.federalregister.gov/documents/2024/03/25/2024-06156/charitable-remainder-annuity-trust-listed-transaction

12.   https://x.com/wealth_mgmt/status/2077453143672074344

13.   https://www.thetaxadviser.com/issues/2024/mar/listing-of-reportable-transactions-under-the-apa/

14.   https://www.journalofaccountancy.com/issues/2022/feb/when-tax-transactions-must-be-reported/

15.    https://www.law.cornell.edu/regulations/colorado/39-22-653

16.   https://beancount.io/blog/2026/05/13/form-8886-reportable-transactions-disclosure-section-6707a-75-percent-penalty-listed-transactions-of-interest-six-year-statute-otsa-guide

17.    https://www.youtube.com/watch?v=KN76IsbNVuI

18.   https://financial-cents.com/resources/articles/irs-form-8886-reportable-transactions/

19.   https://www.federalregister.gov/documents/2026/03/06/2026-04432/removal-of-final-regulations-identifying-certain-partnership-related-party-basis-adjustment

20.  https://www.irs.gov/pub/irs-regs/td8791.pdf

21.   https://www.rosamondfinancialgroup.com/blog/new-rules-charitable-remainder-trusts-2026

22.   https://home.treasury.gov/news/press-releases/ls164

23.   https://www.irs.gov/charities-non-profits/charitable-remainder-trusts

Expatriation Doesn’t Shield US Crypto Tax Cheats

A recent criminal tax case out of the U.S. District Court for the Western District of Texas underscores a point many international taxpayers misunderstand: expatriation does not eliminate prior or ongoing U.S. tax obligations.

In United States v. Schmidt, Case No. 1:26-cr-00094, a crypto hedge fund manager who renounced his U.S. citizenship and relocated to the Cayman Islands was sentenced to 37 months in federal prison following a guilty plea to tax evasion.

Key Facts

Justin Ryan Schmidt, a Texas native, operated a cryptocurrency-focused hedge fund structure, including Translunar Crypto LP and related entities. According to the Department of Justice, Schmidt earned millions through these activities but underreported or concealed that income on his U.S. tax filings over multiple years.

The government alleged several forms of misconduct:

·         Filing false tax returns for at least three years

·         Failing to disclose foreign financial accounts, including holdings at a Cayman Islands bank

·         Misrepresenting financial information during expatriation

·         Providing false information in connection with a multimillion-dollar real estate transaction

Notably, during his 2022 expatriation, Schmidt reportedly declared a net worth of approximately $25,000 when his actual net worth exceeded $2 million, an allegation that directly implicates the exit tax regime under IRC § 877A.

Sentencing Outcome

After initially facing eight counts, Schmidt ultimately pleaded guilty to one count of tax evasion. The court imposed:

·         37 months’ imprisonment

·         Three years of supervised release

·         Approximately $3.4 million in restitution

The sentence aligned with the government’s recommendation and fell within the applicable guideline range.

Expatriation Does Not End IRS Jurisdiction

The DOJ emphasized a recurring enforcement theme: renouncing U.S. citizenship does not shield taxpayers from liability for prior misconduct or ongoing reporting failures.

This case highlights several critical compliance risks:

·         Exit tax exposure under IRC § 877A, particularly where net worth or income is misstated

·         Continued enforcement of pre-expatriation tax liabilities

·         Criminal exposure tied to false statements and willful noncompliance (including FBAR violations)

·         Increased scrutiny of digital asset income and offshore structures

Practical Takeaways for Advisors

For practitioners advising high-net-worth and internationally mobile clients, Schmidt reinforces the importance of accurate and defensible reporting at every stage of the expatriation process.

Particular attention should be given to:

·         Proper valuation of worldwide assets prior to expatriation

·         Full disclosure of foreign financial accounts and entities

·         Coordination between income tax filings, FBAR, and Form 8854 disclosures

·         Documentation supporting cryptocurrency income, gains, and entity structures

The Schmidt case is another example of the government’s willingness to pursue criminal enforcement in cross-border and digital asset contexts. For taxpayers considering expatriation, the planning window is before, not after, compliance failures occur.

 Do You Have A Non-Compliant Offshore Account?

 

Want to Know if the OVDP Program is Right for You? 

Contact the Tax Lawyers at 

Marini & Associates, P.A.   

for a FREE Tax Consultation contact us at:

www.TaxAid.com or www.OVDPLaw.com 

or Toll Free at 888-8TaxAid (888) 882-9243

Sources:

1.       https://www.facebook.com/DOJ/posts/expatriated-hedge-fund-manager-sentenced-to-prison-for-tax-evasion-defendant-con/1479784100853405/

2.      https://assets.bwbx.io/documents/users/iqjWHBFdfxIU/r7wY52tCxDa4/v0

3.      https://www.justice.gov/opa/pr/hedge-fund-manager-indicted-tax-fraud-charges

4.      https://www.taxnotes.com/research/federal/other-documents/other-court-documents/expat-hit-false-return-tax-evasion-and-fbar-charges/7v0bt

5.       https://www.instagram.com/p/DbT7YwwIHMn/

6.      https://www.hklaw.com/en/insights/publications/2008/05/expatriation--look-before-you-leap

7.       https://www.irs.gov/individuals/international-taxpayers/expatriation-tax

8.      https://supreme.justia.com/cases/federal/us/317/492/

9.      https://www.law360.com/cases/699f9ddcc19778f1a6fec6ef?article_sidebar=1

10.    

US Expatriations Up 68.5% iFrom Last Year

• Are You Tired of Trump 2.0.
• That The Republicans Now Control the House & the Senate.
• Are You Sick of Liberal Democrats Trying to Revise Society.
• Are You Tired of Government Shout Downs orFifth
• Maybe You're A Naturalized U.S. Citizen Or Permanent Resident Who Has Prospered Here, But Would Now Like To Move Back The Old Country For Retirement?

You Might Want to Consider Expatriation?

 

The Internal Revenue Service said in its notice that the number of people who lost or renounced their U.S. citizenship totaled nearly 1,800 in the second quarter of 2026 as logged by the U.S. Treasury Department, up 68.5% year-over-year and 21.8% from the previous quarter, the IRS said on July 20, 2026.

Included on the list are those who lost U.S. citizenship under Internal Revenue Code Section 877(a) and Section 877A, according to the notice, as well as long-term residents who are treated as losing citizenship under Section 877(e)(2). 

According to CNBC the top reason why Americans abroad want to dump their U.S. citizenship include:

• Nearly 1 in 4 American expatriates say they are “seriously considering” or “planning” to ditch their U.S. citizenship, a survey from Greenback Expat Tax Services finds.  
• About 9 million U.S. citizens are living abroad, the U.S. Department of State estimates.
• More than 4 in 10 who would renounce citizenship say it’s due to the burden of filing U.S. taxes, the Greenback poll shows.

 

Should I Stay or Should I Go?

Need Advise on Expatriation?

 

Contact the Tax Lawyers at 

Marini & Associates, P.A.

 

for a FREE Tax Consultation contact us at:

www.TaxAid.com or www.OVDPLaw.com 
or Toll Free at 888-8TaxAid (888) 882-9243