IRS Seeks To Curtail Abusive Transactions Involving CRATs

• Published date: 02 April 2024
• Law Firm: Liskow & Lewis
• Author: John A. Rouchell, Leon H. Rittenberg III and Kevin Naccari, Jr.

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On March 22, 2024, the Treasury Department published a proposed regulation relating to certain transactions involving Charitable Remainder Annuity Trusts ("CRATs") investing in single premium immediate annuities ("SPIAs"). The rule would designate transactions seeking to exclude from income SPIA payments from a CRAT under Section 72(b)(2) of the Internal Revenue Code (the "Code"). Any transactions meeting the specific description in the proposed regulation, or any substantially similar transactions, must be reported to the Internal Revenue Service on a Form 8886, Reportable Transaction Disclosure Statement to avoid the penalties in Section 6707A of the Code.

What is a CRAT?

A CRAT, defined in Section 664(d)(1) of the Code, provides a fixed stream of annual income, ranging from five and fifty percent of the original fair market value of the trust, to one or more noncharitable beneficiaries with the remainder payable to one or more charities at the termination of the trust. The term of the irrevocable trust may be up to twenty years or for the life of the noncharitable beneficiary. Upon termination of the trust, the corpus...