Blog · 15 October 2026

Charitable Remainder Annuity Trust Listed Transactions (IR-2026-82): CRAT-SPIA Schemes, Form 8886 and What US CPA Firms Should Check

By Keshav Bansal, CA

A charitable remainder annuity trust (CRAT) is a legitimate planning tool, but one version of it is now a listed transaction. On July 8, 2026, Treasury and the IRS announced in IR-2026-82 final regulations (T.D. 10051, new Treas. Reg. §1.6011-15) that label certain CRAT-plus-annuity arrangements as tax avoidance transactions. The rules were published in the Federal Register on July 9, 2026 and are effective that day. For US CPA firms, the job is to spot the pattern, separate it from a real CRAT and get disclosure right.

What the final regulations identify

Under §1.6011-15(b), a transaction is described if all five elements are present:

1. The grantor creates a trust purporting to qualify as a CRAT under IRC §664(d)(1).
2. The grantor funds it with property whose fair market value exceeds its basis.
3. The trustee sells the contributed property.
4. The trustee uses some or all of the sale proceeds to buy an annuity.
5. On a federal income tax return, the beneficiary treats the trust’s annuity amount as if it were, in whole or in part, an annuity payment subject to IRC §72—instead of as carrying out amounts from the trust’s ordinary income and capital gain tiers under §664(b).

Transactions that are “the same as, or substantially similar to” this pattern are also listed. IR-2026-82 describes the typical facts: appreciated property such as interests in a closely held business, or assets used or produced in a trade or business, goes into the purported CRAT; the trust sells it and buys a single premium immediate annuity (SPIA); then, “by misapplying the rules under sections 72 and 664,” the beneficiary claims the CRAT annuity is taxable only to the extent of the income portion of the SPIA payment.

“The Internal Revenue Service remains vigilant and is watching out for tax avoidance schemes,” IRS CEO Frank J. Bisignano said in the release.

How a real CRAT is taxed

The problem with the scheme is the tier system Congress wrote into §664. Under §664(d)(1), a CRAT pays a sum certain of not less than 5% nor more than 50% of the initial net fair market value of the trust property, at least annually, for life or a term of up to 20 years. The remainder then goes to a §170(c) charity, and its value under §7520 must be at least 10% of the initial net fair market value. Section 170(f)(2)(A) allows a deduction for a remainder interest in trust only for a CRAT, charitable remainder unitrust or pooled income fund.

Under §664(c)(1), a CRAT is not subject to income tax. It can sell appreciated property without trust-level tax (unrelated business taxable income triggers a §664(c)(2) excise tax), but the gain does not disappear. Section 664(b) says distributions carry out, in order:

• First, ordinary income (current and undistributed prior-year);
• Second, capital gain (current and undistributed, on a cumulative net basis);
• Third, other income (for example, tax-exempt income);
• Fourth, trust corpus.

So the trust’s sale gain sits in the second tier and reaches the beneficiary as annuity payments are made. Buying a commercial annuity inside the trust does not turn the CRAT payout into a §72 annuity with a tax-free “investment” piece. The one public comment on the March 2024 proposed regulations said the arrangements “miscomprehend the operation of the tier structure under section 664.”

Who has to disclose, and when

A taxpayer participates if their return reflects the tax consequences or strategy described in the regulation. Per §1.6011-15(c)(1), that includes consequences affecting a gift tax return, whether or not one was filed. Participants file Form 8886, Reportable Transaction Disclosure Statement. Material advisors file Form 8918, Material Advisor Disclosure Statement. The Form 8918 instructions state that for listed transactions the gross-income thresholds for material-advisor status drop from $50,000 to $10,000 and from $250,000 to $25,000.

Per the Form 8886 instructions, attach the form to the return for each year of participation and send an exact copy of the first-year form to the IRS Office of Tax Shelter Analysis (OTSA). If a transaction entered into after August 2, 2007 becomes listed after the client already filed a return reflecting it, and the assessment period is still open, Form 8886 goes to OTSA within 90 days after the date it became listed. With an effective date of July 9, 2026, clients who already reported a CRAT-SPIA position need attention now.

A §170(c) charity named as remainderman is not treated as a participant, or as a party for the §4965 prohibited tax shelter excise tax, solely because it holds the remainder. The preamble adds that merely describing a qualifying CRAT does not make a charity a material advisor; endorsing the abusive tier reading could.

What non-disclosure costs

• §6707A penalty: 75% of the decrease in tax resulting from the transaction. For a listed transaction it is capped at $200,000 ($100,000 for a natural person), with a minimum of $10,000 ($5,000 for a natural person). It is a non-disclosure penalty, added to any other penalty (§6707A(f)), and §6707A(d) rescission is unavailable for listed transactions.
• §6662A accuracy penalty: 20% of a reportable transaction understatement, rising to 30% for the undisclosed portion.
• Open statute: under §6501(c)(10), if required listed-transaction information is not disclosed, the assessment period for that transaction does not close before one year after the IRS gets the information.

For penalty defenses, see our Clear Sky captive §6662 guide; listed syndicated conservation easements carry the same Form 8886 duty (Toscano conservation easement post).

A practical CRAT review checklist

1. Scan Forms 5227 and beneficiary K-1s for CRATs that sold appreciated property and bought an annuity.
2. Compare how the client reported the annuity on Form 1040 with the §664(b) tier character shown on the trust K-1. A §72 exclusion ratio is the red flag.
3. For any match, prepare Form 8886 for each affected year plus the OTSA copy, and review timing and §6501(c)(10) exposure with the client’s counsel.
4. If your firm advised on the structure, test whether fees cross the reduced Form 8918 thresholds.
5. Make sure the original charitable deduction was limited to the §7520 remainder value and properly substantiated (see our Williams §170 substantiation lessons).

The preamble estimates 50 to 100 affected taxpayers a year: rare, but costly. As KPMG notes, CRATs without these specific characteristics are not listed transactions.

Where this fits for Tax Brew readers

This work is mostly document gathering: trust returns, K-1 tier reconciliations, annuity contracts and multi-year Form 8886 packages. If that is stretching your team, outsourced bookkeeping and tax support for US CPA firms can build the schedules while your professionals make the judgment calls. Email info@taxbrewglobal.com.

Sources: IR-2026-82 (July 8, 2026); T.D. 10051, Charitable Remainder Annuity Trust Listed Transaction, 91 FR 42353 (July 9, 2026), Treas. Reg. §1.6011-15; IRC §§664, 170(f)(2), 6707A, 6662A, 6501(c)(10) (Cornell LII); Instructions for Form 8886 (Rev. 10/2022) and Form 8918 (11/2021); corroborated by Journal of Accountancy (July 9, 2026; October 2026 Line items) and KPMG TaxNewsFlash (July 8, 2026). General information, not tax or legal advice. Sources as of 15 October 2026.