On July 8, 2026, the U.S. Department of the Treasury and the IRS issued final regulations that name certain Charitable Remainder Annuity Trust (CRAT) arrangements as “listed transactions.”
The new rule means that anyone who promotes or participates in these specific arrangements may have to file disclosure forms with the IRS — and can face penalties for failing to disclose.
What a CRAT Is (in Plain Words)
A Charitable Remainder Annuity Trust is a special kind of trust that pays a fixed annual amount to a beneficiary for a period of time, with whatever is left over going to charity. CRATs are legal when used properly.
But the IRS has warned for years about abusive versions of these trusts being sold as a way to make taxes disappear on the sale of property.
What the IRS Says Is Abusive
According to the release, the transaction works like this:
- A taxpayer transfers property into a purported CRAT. The property’s value is higher than its cost basis — for example, a share in a closely-held business, or assets used in a trade or business.
- The trust then sells the property and uses the proceeds to buy a single premium immediate annuity (SPIA).
- The taxpayer claims that the annuity payments are taxable only on a small portion of each payment, by misapplying tax rules under sections 72 and 664.
- The result, on paper, is that ordinary income and capital gains on the sale seem to vanish.
The IRS considers this arrangement — and any substantially similar one — a listed transaction, the agency’s label for an abusive tax shelter.
Why It Matters
A “listed transaction” comes with serious obligations:
- Material advisors (the people who set up, recommend, or sell these arrangements) must file disclosure forms with the IRS.
- Some participants must file disclosures too.
- Penalties apply for failing to disclose.
- The IRS has said it remains vigilant and will keep pursuing abusive tax shelters.
The IRS CEO, Frank J. Bisignano, said the agency “will continue to combat abusive tax shelters and transactions.”
What This Means for Small Business Owners
Most Schedule C filers will never be offered a CRAT structure. But the rule does single out closely-held business interests and assets used or produced in a trade or business as the types of property sometimes shoved into these trusts.
If anyone ever pitches a plan that claims to:
- Eliminate the tax on the sale of your business or business assets
- Create a “trust” that pays you back while erasing capital gain
- Use a charitable trust to avoid ordinary income tax
…treat it as a red flag. Get a second opinion from an independent, licensed tax professional before signing anything. The cost of a bad trust structure can include back taxes, penalties, disclosure duties, and an IRS audit — far more than any promised tax savings.
Honest bookkeeping is the opposite of a scheme. Simple-C helps Schedule C filers keep clean, well-documented records, so when you do talk to a real tax advisor, your numbers are ready and accurate.
This article provides general information, not tax or legal advice. Listed transaction rules are technical and can change. Confirm the current details on IRS.gov, and always consult a qualified tax professional before entering a trust arrangement.