The Tax Times: 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.

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