T.D. 10051: The Abusive CRAT–SPIA Scheme Is Now a Listed Transaction — What the Final Regulations Require, and Why Legitimate Charitable Remainder Trusts Are Untouched

Jurisdiction: Federal

Primary Statutes: IRC §§ 664(b), 664(c)(1), 664(d)(1), 72, 1015, 6011, 6111, 6112, 6501(c)(10), 6707A, 6708, 4965

Key Authorities: T.D. 10051 (Fed. Reg. July 9, 2026); Treas. Reg. §§ 1.6011-15, 1.6011-4; REG-108761-22, 89 Fed. Reg. 20,569 (Mar. 25, 2024); Gerhardt v. Commissioner, 160 T.C. No. 9 (2023); Furrer v. Commissioner, T.C. Memo. 2022-100; United States v. Eickhoff, No. 2:22-cv-04027 (W.D. Mo.); IR-2026-82 (July 8, 2026); IRS Forms 8886, 8918

Last Reviewed: July 2026

Category: Charitable Planning — Regulatory Development / Compliance

By Klaus Gottlieb, Esq.

At a Glance

What happened, in one sentence. On July 8, 2026, Treasury and the IRS issued final regulations (T.D. 10051), effective upon Federal Register publication on July 9, 2026, that designate the abusive CRAT/single-premium-immediate-annuity tax-elimination scheme — and any substantially similar transaction — as a listed transaction under new Treas. Reg. § 1.6011-15.

Who must act. Anyone who participated in the described transaction in a tax year the IRS can still audit, and anyone who acted as a material advisor to it.

The deadline. Participants must file Form 8886 (with a copy to the Office of Tax Shelter Analysis) and material advisors must file Form 8918 within 90 days of the listing date — by October 7, 2026.

The exposure. Section 6707A penalties of up to $100,000 per individual ($200,000 for entities) for each failure to disclose, with no reasonable-cause rescission available for listed transactions, plus an assessment period that remains open under § 6501(c)(10) until one year after the required disclosure is finally made.

Who is not affected. Conventional CRATs and CRUTs whose distributions are reported under the § 664(b) four-tier ordering rules, and charities whose only role in the transaction is as the charitable remainderman.

Some tax schemes fail quietly. This one failed in a precedential Tax Court opinion, drew a Department of Justice promoter-injunction suit, earned a spot on the IRS “Dirty Dozen,” and has now been given the most consequential label in the tax compliance vocabulary: listed transaction. This brief explains what the scheme was, why it never worked, what the final regulations under T.D. 10051 now require, and — just as important for this audience — why properly designed and properly reported charitable remainder trusts are entirely outside the rule’s reach.

Tax Notes sought my comment for its same-day coverage of the final regulations (A.J. Collins, “CRAT Misuse Formalized as Listed Transaction Under Final Regs,” Tax Notes, July 9, 2026); this analysis expands on the points I made there.

1. How the Scheme Was Supposed to Work — and the Promise It Made

The transaction that T.D. 10051 targets has four defining elements, now codified at Treas. Reg. § 1.6011-15(b):

1. The grantor creates a trust purporting to qualify as a charitable remainder annuity trust under § 664(d)(1);

2. The grantor funds the trust with property whose fair market value exceeds its basis — classically farmland, closely held business interests, or other business-use assets;

3. The trustee sells the appreciated property and uses some or all of the proceeds to purchase an annuity, typically a single premium immediate annuity (SPIA); and

4. On a federal income tax return, the beneficiary treats the annuity amount payable from the trust as if it were an annuity payment subject to § 72, rather than as a trust distribution carrying out ordinary income and capital gain under § 664(b).

The promise was seductive. Because a qualifying CRT pays no income tax on its own gains under § 664(c)(1), the trust-level sale is indeed tax-free — that much is how every legitimate charitable remainder trust works. The scheme’s promoters then claimed that routing the proceeds through a commercial annuity converted the payments into a mostly tax-free return of the trust’s “investment in the contract” under § 72. Some versions went further, asserting that contributed assets took a fair-market-value basis in the trust’s hands, so there was no gain to carry out at all. If either theory held, ordinary income and capital gain on the sale of appreciated property would simply vanish.

2. Why It Never Worked: The Four-Tier Rule and Gerhardt

Neither theory ever held. Distributions from a charitable remainder trust are governed by the mandatory ordering rules of § 664(b): they carry out, first, the trust’s ordinary income (current and accumulated); second, capital gain; third, other income; and only last, tax-free trust corpus. The trust’s exemption under § 664(c)(1) defers the gain — it does not erase it. The gain waits inside the trust and comes out to the beneficiary, with its character intact, as distributions are made.

The Tax Court said exactly this in Gerhardt v. Commissioner, 160 T.C. No. 9 (2023), a precedential division opinion involving four couples who contributed low-basis farm properties to CRATs, whose trustees promptly sold the properties and bought five-year SPIAs. In one representative trust, property reported at $1,808,000 of value against a $95,517 basis produced five annual payments of $311,708 — of which the taxpayers reported roughly $2,026 of interest income. The court held every payment taxable as ordinary income under § 664(b): the trust, not the beneficiaries, owned the SPIA, so nothing in § 72 displaced the tier rules. Judge Toro memorably wrote that the promised gain-disappearing act was “worthy of a Penn and Teller magic show” — and found no support for it in the Code, the regulations, or the case law. The companion case, Furrer v. Commissioner, T.C. Memo. 2022-100, reached the same result for contributed crops, and the Department of Justice separately sued the promoters (United States v. Eickhoff, W.D. Mo.), alleging the scheme spanned at least 70 CRATs and roughly $40 million in unreported income.

In short: the scheme was dead on the merits by 2023. What was missing was compliance machinery to find every taxpayer who had used it. That is what T.D. 10051 supplies.

3. From Dirty Dozen to Notice-and-Comment: Why the IRS Chose Formal Rulemaking

The IRS flagged CRAT misuse on its “Dirty Dozen” list of abusive arrangements in March 2023 and proposed the listing regulations a year later (REG-108761-22, March 25, 2024). The choice of regulations — rather than the sub-regulatory Notices the IRS historically used to identify listed transactions — is itself significant. After Mann Construction and the line of cases following it (Green Valley, Green Rock, GBX Associates, CIC Services), courts have invalidated Notice-based listings for failure to comply with the Administrative Procedure Act’s notice-and-comment requirements. By running this designation through full notice-and-comment rulemaking, Treasury has insulated it from the procedural challenges that unwound earlier listings. Practitioners hoping the designation might be vulnerable on APA grounds should not count on it.

The final regulations adopt the 2024 proposal essentially unchanged. Only one comment was received — and it supported the rule, agreeing that the targeted transactions “miscomprehend” the operation of the § 664 tier structure.

4. What T.D. 10051 Actually Requires

Participants — taxpayers whose returns reflect the tax consequences or strategy described in the regulation — must disclose on Form 8886, Reportable Transaction Disclosure Statement, filed with the return and, for the first year, with the IRS Office of Tax Shelter Analysis. Participation includes reflecting the gift tax consequences of the transaction, regardless of income tax filing.

Material advisors — those who provide material aid, assistance, or advice and receive gross income above the § 301.6111-3(b)(3) thresholds ($10,000 where substantially all tax benefits go to natural persons; $25,000 otherwise) — must file Form 8918, Material Advisor Disclosure Statement, and maintain investor lists under § 6112, with § 6708 penalties for failure to produce them on request.

Penalties for silence are severe. Section 6707A imposes a penalty of 75 percent of the decrease in tax shown on the return as a result of the transaction, subject to a maximum of $100,000 for a natural person ($200,000 otherwise) and a minimum of $5,000 ($10,000 otherwise) — per failure, per year. For listed transactions, the Commissioner has no authority to rescind the penalty. There is no good-faith excuse.

The statute of limitations stays open. Under § 6501(c)(10), if a taxpayer fails to disclose a listed transaction as required, the assessment period for that transaction does not close until one year after the taxpayer furnishes the required information (or a material advisor furnishes the investor list identifying the taxpayer). Silence does not run out the clock; it stops the clock.

5. The October 7 Window and the Cost of Silence

Because the transaction became listed on July 9, 2026, taxpayers who participated in it in any open year have 90 days — until October 7, 2026 — to file the required disclosure under Treas. Reg. § 1.6011-4(e)(2)(i). That window is the whole ballgame for anyone with one of these structures in an auditable year.

6. The Charitable Remainderman Carve-Out

The regulations take deliberate care to protect charities. An organization described in § 170(c) whose only role or interest in the transaction is as the charitable remainderman is not treated as a participant, is exempt from the disclosure requirement, and is not treated as a “party” to a prohibited tax shelter transaction for purposes of the § 4965 excise tax solely by reason of holding the remainder interest. The preamble goes further: a charity that merely suggests a donor consider a CRAT, or provides general information about how qualifying CRATs work, has not made a “tax statement” and does not become a material advisor. Gift planning officers can stand down — this rule was written with them in mind, not against them.

7. As Quoted in Tax Notes: A Narrow Rule, a Broad Safe Harbor

When Tax Notes sought practitioner comment for its same-day coverage of the final regulations, this was my assessment:

“This rule draws a narrow line around a specific scam, and legitimate charitable remainder trusts are nowhere near it. A donor whose trust reports its payments correctly has nothing to disclose and nothing to fear.”

And for those who are near the line:

“Anyone who uses this scheme in a tax year the IRS can still audit has 90 days — until early October — to file a disclosure. The penalty for staying silent runs up to $100,000 for an individual — there is no good-faith excuse. And the clock for the IRS to come after the transaction never runs out until one year after the taxpayer discloses. The rational move is to come forward.”

The analytical point deserves emphasis because headlines like “IRS labels CRATs as listed transactions” will inevitably alarm donors and advisors who have done nothing wrong. The listing does not apply to charitable remainder annuity trusts as a category. It applies to a specific four-element fact pattern whose defining feature is misreporting — treating trust distributions under § 72 instead of § 664(b). A CRAT or CRUT that reports its distributions through the four tiers, as the law has always required, is not described in the regulation, is not substantially similar to it, and carries no disclosure obligation. The remainder of the charitable remainder trust toolkit — including the CRUT structures this site is devoted to — is exactly as viable on July 10, 2026 as it was on July 7.

8. Practice Pointers for Advisors

Scan the book now. The trigger phrase in a client file is a charitable remainder trust — usually a short-term CRAT formed between roughly 2015 and 2022 — that sold contributed property and purchased a commercial annuity. If you see a CRAT and a SPIA in the same structure, escalate immediately; the disclosure window closes October 7, 2026.

Watch for the scheme’s fingerprints. The preamble flags features common to the promoted structures that independently threaten CRAT qualification under § 664(d)(1), including “greater-of” annuity clauses (annuity defined as the greater of a percentage of initial value or the SPIA payments) and early cash buyouts of the charitable remainderman for 10 percent of initial value plus a nominal amount. Any of these in a trust instrument warrants a full review.

Do not assume the problem is confined to income tax filings. Participation includes reflected gift tax consequences, and disclosure is required regardless of whether additional tax is ultimately owed.

For charities: confirm your only role is as remainderman and that you have not been compensated for advice touching the structure; if so, the regulations exempt you.

For everyone else: this is a moment for client communication, not client panic. The correct message mirrors the regulation itself — narrow scam, broad safe harbor for honest reporting.

Klaus Gottlieb, Esq. (JD, MBA, LLM Taxation) is an estate planning attorney whose statewide California practice concentrates on charitable remainder trusts. He was quoted in Tax Notes’ coverage of T.D. 10051. For CRT design questions, deduction modeling, or a second opinion on an existing structure, see the CalCRUT tools suite or schedule a call.

Sources: T.D. 10051, Charitable Remainder Annuity Trust Listed Transaction, Federal Register (July 9, 2026); IR-2026-82 (July 8, 2026); A.J. Collins, “CRAT Misuse Formalized as Listed Transaction Under Final Regs,” Tax Notes (July 9, 2026) (subscription); Gerhardt v. Commissioner, 160 T.C. No. 9 (2023).