If you have a charitable remainder annuity trust (CRAT), or you are considering setting one up, you may have seen recent headlines about the IRS “cracking down on CRATs” and started to worry. Fortunately, this new rule does not target the legitimate CRAT strategies your estate planner may have recommended. It’s aimed at a very specific and aggressive approach promoted to completely avoid capital gains tax. If you’re concerned about your plan, it’s important to understand what has changed, whether it affects you, and what steps you should take next.
What Changed with the New CRAT ‘Listed Transaction’ Rule?
On July 9, 2026, the Treasury Department and IRS finalized regulations (TD 10051) that formally designate a specific CRAT structure as a “listed transaction.” In IRS terms, this means they have seen this pattern frequently enough that it is no longer considered a gray area. It’s now on their list, and those involved must file additional paperwork.
The flagged structure looks like this:
You fund a CRAT with appreciated property such as stock, real estate, or a business interest.
The trustee sells that property inside the trust.
The trustee uses the sale proceeds to buy a single premium immediate annuity (SPIA).
On the tax return, the beneficiary reports the payments from the trust as ordinary annuity income under Section 72, rather than running them through the tiered ordinary income, capital gain, and tax-exempt income categories that Section 664 requires for CRAT distributions.
That last step is what separates properly paying taxes from making a significant capital gain disappear. The IRS no longer views this approach as an aggressive-but-defensible interpretation. It is now officially a tax-avoidance transaction.
Do I have to file Form 8886 or Form 8918 for my CRAT?
A “listed transaction” designation goes beyond the IRS simply disagreeing with your tax position. It triggers mandatory disclosure requirements, even if there was no fraudulent intent involved.
- If your CRAT fits the pattern described above, you are generally required to file Form 8886 (Reportable Transaction Disclosure Statement) with your tax return.
- Advisors, attorneys, CPAs, or promoters involved in structuring or selling the arrangement may also be required to file Form 8918 (Material Advisor Disclosure Statement).
- Penalties for failing to disclose a listed transaction are separate from standard tax penalties. The IRS treats non-disclosure as a violation, in addition to any underlying tax adjustments.
One detail in the final regulations is that the charity designated to receive the remainder interest is not considered a participant in the transaction. This means the charity is not automatically subject to excise tax exposure under Section 4965 simply for being named as a beneficiary. So, you do not need to worry about your favorite charity’s exposure. These rules are aimed at the donor, trustee, and promoters of the arrangement.
Is my Charitable Remainder Trust Still Safe?
This crucial distinction is often lost. Legitimate CRAT planning remains unaffected. When a charitable remainder annuity trust is properly structured and reported with distributions accurately characterized under the Section 664 tier system, it continues to be an effective way to combine a charitable legacy with income and tax deferral. TD 10051 does not alter the fundamental rules for CRATs. Instead, it targets how a specific mischaracterization of CRAT income is reported and penalized.
What Should I do if I Already Have a CRAT?
If you have an existing CRAT, avoid making assumptions about your compliance. Gather your trust document and your last two years of tax returns, and consult your advisor directly. Confirm whether the annuity distributions are being reported under the Section 664 tier structure or as straight Section 72 annuity income. If the latter applies, discuss potential disclosure obligations before your next filing deadline.
If you’re considering setting up a CRAT, make sure that whoever structures your trust does so correctly. Funding the trust with appreciated assets and diversifying by selling within the trust remain effective strategies, and the charitable and income tax benefits are unchanged. The only shift is that the IRS now strictly enforces proper reporting, with no tolerance for one specific shortcut.
This serves as a timely reminder to review your plan. There is no new deadline for those with legitimate structures, but if your CRAT already completed the flagged sale-and-SPIA pattern before July 9, 2026, you generally have until October 7, 2026, a 90-day window, to disclose it. If you are uncertain about how your trusts’ distributions have been reported, it is best to resolve that uncertainty before that date.
If you would like a second opinion on how your CRAT has reported distributions, consult an advisor before your next tax return is filed.
Conclusion
Regulatory changes like TD 10051 can easily fall through the cracks if your attorney, trustee, and CPA are not in alignment. MBE CPAs monitors these developments and interprets their implications for clients. We assist high-net-worth business owners and families with tax and reporting matters related to CRATs, CRUTs, and other charitable and estate-planning structures.
Ready to review your CRAT? If you have an existing charitable remainder annuity trust, or you’re considering establishing one, reach out to the team at MBE CPAs for a review of how your trust is structured and reported.
This article is for general informational purposes and isn’t a substitute for advice specific to your trust, return, or circumstances.