Charitable Remainder Annuity Trust Listed Transaction
| Published date | 25 March 2024 |
| Record Number | 2024-06156 |
| Citation | 89 FR 20569 |
| Court | Treasury Department |
| Section | Proposed rules |
Federal Register, Volume 89 Issue 58 (Monday, March 25, 2024)
[Federal Register Volume 89, Number 58 (Monday, March 25, 2024)]
[Proposed Rules]
[Pages 20569-20577]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-06156]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-108761-22]
RIN 1545-BQ58
Charitable Remainder Annuity Trust Listed Transaction
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking and public hearing.
-----------------------------------------------------------------------
SUMMARY: This document contains proposed regulations that would
identify certain charitable remainder annuity trust (CRAT) transactions
and substantially similar transactions as listed transactions, a type
of reportable transaction. Material advisors and certain participants
in these listed transactions would be required to file disclosures with
the IRS and would be subject to penalties for failure to disclose. The
proposed regulations would affect participants in these transactions as
well as material advisors but provide that certain organizations whose
only role or interest in the transaction is as a charitable
remainderman will not be treated as participants in the transaction or
as parties to a prohibited tax shelter transaction subject to excise
taxes and disclosure requirements. Finally, this document provides
notice of a public hearing on the proposed regulations.
DATES:
Comments: Electronic or written comments must be received by May
24, 2024.
Public Hearing: A public hearing on the proposed regulation is
scheduled for July 11, 2024, at 10 a.m. ET. Requests to speak and
outlines of topics to be discussed at the public hearing must be
received by May 24, 2024. If no outlines are received by May 24, 2024,
the public hearing will be cancelled. Requests to attend the public
hearing must be received by 5 p.m. on July 9, 2024.
ADDRESSES: Commenters are strongly encouraged to submit public comments
electronically via the Federal eRulemaking Portal at https://regulations.gov (indicate IRS and REG-108761-22) by following the
online instructions for submitting comments. Requests for a public
hearing must be submitted as prescribed in the ``Comments and Requests
for a Public Hearing'' section. Once submitted to the Federal
eRulemaking Portal comments cannot be edited or withdrawn. The
Department of the Treasury (Treasury Department) and the IRS will
publish availability any comments submitted to the IRS's public docket.
Send paper submission to CC:PA:01:PR (REG-108761-22) room 5203,
Internal Revenue Service, P.O. Box 7604, Ben Franklin Station,
Washington, DC 20044.
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
Charles D. Wien of the Office of Associate Chief Counsel (Passthroughs
& Special Industries), (202) 317-5279; concerning submissions of
comments and requests for hearing, Vivian Hayes at (202) 317-6901 (not
toll-free numbers) or by sending an email to [email protected]
(preferred).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed additions to 26 CFR part 1 (Income
Tax Regulations) under section 6011 of the Internal Revenue Code
(Code). The additions identify certain transactions as ``listed
transactions'' for purposes of section 6011.
I. Disclosure of Reportable Transactions by Participants and Penalties
for Failure To Disclose
Section 6011(a) generally provides that, when required by
regulations prescribed by the Secretary of the Treasury or her delegate
(Secretary), ``any person made liable for any tax imposed by this
title, or with respect to the collection thereof, shall make a return
or statement according to the
[[Page 20570]]
forms and regulations prescribed by the Secretary. Every person
required to make a return or statement shall include therein the
information required by such forms or regulations.''
Section 1.6011-4(a) provides that every taxpayer that has
participated in a reportable transaction within the meaning of Sec.
1.6011-4(b) and who is required to file a tax return must file a
disclosure statement within the time prescribed in Sec. 1.6011-4(e).
Reportable transactions are identified in Sec. 1.6011-4 and include
listed transactions, confidential transactions, transactions with
contractual protection, loss transactions, and transactions of
interest. See Sec. 1.6011-4(b)(2) through (6). Section 1.6011-4(b)(2)
defines a listed transaction as a transaction that is the same as or
substantially similar to one of the types of transactions that the IRS
has determined to be a tax avoidance transaction and identified by
notice, regulation, or other form of published guidance as a listed
transaction.
Section 1.6011-4(c)(4) provides that a transaction is
``substantially similar'' if it is expected to obtain the same or
similar types of tax consequences and is either factually similar or
based on the same or similar tax strategy. Receipt of an opinion
regarding the tax consequences of the transaction is not relevant to
the determination of whether the transaction is the same as or
substantially similar to another transaction. Further, the term
substantially similar must be broadly construed in favor of disclosure.
For example, a transaction may be substantially similar to a listed
transaction even though it may involve different entities or use
different Code provisions.
Section 1.6011-4(c)(3)(i)(A) provides that a taxpayer has
participated in a listed transaction if the taxpayer's tax return
reflects tax consequences or a tax strategy described in the published
guidance that lists the transaction under Sec. 1.6011-4(b)(2).
Published guidance may identify other types or classes of persons that
will be treated as participants in a listed transaction. Published
guidance also may identify types or classes of persons that will not be
treated as participants in a listed transaction.
Section 1.6011-4(d) and (e) provide that the disclosure statement
Form 8886, Reportable Transaction Disclosure Statement (or successor
form), must be attached to the taxpayer's tax return for each taxable
year for which a taxpayer participates in a reportable transaction. A
copy of the disclosure statement must be sent to the IRS's Office of
Tax Shelter Analysis (OTSA) at the same time that any disclosure
statement is first filed by the taxpayer pertaining to a particular
reportable transaction.
Section 1.6011-4(e)(2)(i) provides that, if a transaction becomes a
listed transaction after the filing of a taxpayer's tax return
reflecting the taxpayer's participation in the listed transaction and
before the end of the period of limitations for assessment for any
taxable year in which the taxpayer participated in the listed
transaction, then a disclosure statement must be filed with OTSA within
90 calendar days after the date on which the transaction becomes a
listed transaction. This requirement extends to an amended return and
exists regardless of whether the taxpayer participated in the
transaction in the year the transaction became a listed transaction.
The Commissioner of Internal Revenue (Commissioner) also may determine
the time for disclosure of listed transactions in the published
guidance identifying the transaction.
Participants required to disclose these transactions under Sec.
1.6011-4 who fail to do so are subject to penalties under section 6707A
of the Code. Section 6707A(b) provides that the amount of the penalty
is 75 percent of the decrease in tax shown on the return as a result of
the reportable transaction (or which would have resulted from such
transaction if such transaction were respected for Federal tax
purposes), subject to minimum and maximum penalty amounts. The minimum
penalty amount is $5,000 in the case of a natural person and $10,000 in
any other case. For a listed transaction, the maximum penalty amount is
$100,000 in the case of a natural person and $200,000 in any other
case.
Additional penalties also may apply. In general, section 6662A of
the Code imposes a 20 percent accuracy-related penalty on any
understatement (as defined in section 6662A(b)(1)) attributable to an
adequately disclosed reportable transaction. If the taxpayer had a
requirement to disclose participation in the reportable transaction but
did not adequately disclose the transaction in accordance with the
regulations under section 6011, the taxpayer is subject to an increased
penalty rate equal to 30 percent of the understatement. See section
6662A(c). Section 6662A(b)(2) provides that section 6662A applies to
any item that is attributable to any listed transaction and any
reportable transaction (other than a listed transaction) if a
significant purpose of such transaction is the avoidance or evasion of
Federal income tax.
Participants required to disclose listed transactions who fail to
do so also are subject to an extended period of limitations under
section 6501(c)(10) of the Code. That section provides that the time
for assessment of any tax with respect to the transaction shall not
expire before the date that is one year after the earlier of the date
the participant discloses the transaction or the date a material
advisor discloses the participation pursuant to a written request under
section 6112(b)(1)(A) of the Code.
II. Disclosure of Reportable Transactions by Material Advisors and
Penalties for Failure To Disclose
Section 6111(a) provides that each material advisor with respect to
any reportable transaction shall make a return setting forth: (1)
information identifying and describing the transaction, (2) information
describing any potential tax benefits expected to result from the
transaction, and (3) such other information as the Secretary may
prescribe. Such return shall be filed not later than the date specified
by the Secretary.
Section 301.6111-3(a) of the Procedure and Administration
Regulations provides that each material advisor with respect to any
reportable transaction, as defined in Sec. 1.6011-4(b), must file a
return as described in Sec. 301.6111-3(d) by the date described in
Sec. 301.6111-3(e).
Section 301.6111-3(b)(1) provides that a person is a material
advisor with respect to a transaction if the person provides any
material aid, assistance, or advice with respect to organizing,
managing, promoting, selling, implementing, insuring, or carrying out
any reportable transaction, and directly or indirectly derives gross
income in excess of the threshold amount as defined in Sec. 301.6111-
3(b)(3) for the material aid, assistance, or advice. Under Sec.
301.6111-3(b)(2)(i) and (ii), a person provides material aid,
assistance, or advice if the person provides a tax statement, which is
any statement (including another person's statement), oral or written,
that relates to a tax aspect of a transaction that causes the
transaction to be a reportable transaction as defined in Sec. 1.6011-
4(b)(2) through (7).
Material advisors must disclose transactions on Form 8918, Material
Advisor Disclosure Statement (or successor form), as provided in Sec.
301.6111-3(d) and (e). Section 301.6111-3(e) provides that the material
advisor's disclosure statement for a reportable transaction must be
filed with the OTSA by the last day of the
[[Page 20571]]
month that follows the end of the calendar quarter in which the advisor
becomes a material advisor with respect to a reportable transaction or
in which the circumstances necessitating an amended disclosure
statement occur. The disclosure statement must be sent to the OTSA at
the address provided in the instructions for Form 8918 (or successor
form).
Section 301.6111-3(d)(2) provides that the IRS will issue to a
material advisor a reportable transaction number with respect to the
disclosed reportable transaction. Receipt of a reportable transaction
number does not indicate that the disclosure statement is complete, nor
does it indicate that the transaction has been reviewed, examined, or
approved by the IRS. Material advisors must provide the reportable
transaction number to all taxpayers and material advisors for whom the
material advisor acts as a material advisor as defined in Sec.
301.6111-3(b). The reportable transaction number must be provided at
the time the transaction is entered into, or, if the transaction is
entered into prior to the material advisor's receipt of the reportable
transaction number, within 60 calendar days from the date the
reportable transaction number is mailed to the material advisor.
Section 6707(a) of the Code provides that a material advisor who
fails to file a timely disclosure, or files an incomplete or false
disclosure statement, is subject to a penalty. Pursuant to section
6707(b)(2), for listed transactions, the penalty is the greater of (A)
$200,000, or (B) 50 percent of the gross income derived by such person
with respect to aid, assistance, or advice that is provided with
respect to the listed transaction before the date the return is filed
under section 6111.
Additionally, section 6112(a) provides that each material advisor
with respect to any reportable transaction shall (whether or not
required to file a return under section 6111 with respect to such
transaction) maintain a list (1) identifying each person with respect
to whom such advisor acted as a material advisor with respect to such
transaction and (2) containing such other information as the Secretary
may by regulations require. Material advisors must furnish such lists
to the IRS in accordance with Sec. 301.6112-1(e).
A material advisor may be subject to a penalty under section 6708
of the Code for failing to maintain a list under section 6112(a) and
failing to make the list available upon written request to the
Secretary in accordance with section 6112(b) within 20 business days
after the date of such request. Section 6708(a) provides that the
penalty is $10,000 per day for each day of the failure after the 20th
day. However, no penalty will be imposed with respect to the failure on
any day if such failure is due to reasonable cause.
III. Tax-Exempt Entities as Parties to Prohibited Tax Shelter
Transactions
Section 4965 of the Code is intended to deter certain ``tax-exempt
entities'' (as defined in section 4965(c)) from facilitating
``prohibited tax shelter transactions,'' which include listed
transactions. Section 4965(a)(1), in part, imposes an excise tax on a
tax-exempt entity for the taxable year in which the tax-exempt entity
becomes a party to a transaction that is a ``prohibited tax shelter
transaction'' at the time it becomes a party to the transaction, and
for any subsequent taxable year, in the amount determined under section
4965(b)(1) (section 4965 tax). Tax-exempt entities subject to the
section 4965 tax are listed in section 4965(c)(1) through (3) and
include, among others, entities and governmental units described in
sections 501(c) and 170(c) of the Code (other than the United States).
A tax-exempt entity that is a party to a prohibited tax shelter
transaction generally also is subject to various reporting and
disclosure obligations.
Additionally, section 4965(a)(2) imposes an excise tax on an
``entity manager'' if the manager approves the tax-exempt entity as a
party (or otherwise causes the tax-exempt entity to be a party) to a
prohibited tax shelter transaction and knows or has reason to know that
the transaction is a prohibited tax shelter transaction. The amount of
this excise tax is determined under section 4965(b)(2) (entity manager
tax).
A. The Section 4965 Tax
The amount of the section 4965 tax owed by a tax-exempt entity
depends on whether the tax-exempt entity knows, or has reason to know,
that a transaction is a prohibited tax shelter transaction at the time
the entity becomes a party to the transaction. A tax-exempt entity is
treated as knowing or having reason to know that a transaction is a
prohibited tax shelter transaction if one or more of its entity
managers knew or had reason to know that the transaction was a
prohibited tax shelter transaction at the time the entity manager(s)
approved the tax-exempt entity as (or otherwise caused the entity to
be) a party to the transaction.\1\ The tax-exempt entity also is
attributed the knowledge or reason to know of certain entity managers--
those persons with authority or responsibility similar to that
exercised by an officer, director, or trustee of an organization--even
if the entity manager does not approve the entity as (or otherwise
cause the entity to be) a party to the transaction.
---------------------------------------------------------------------------
\1\ Section 53.4965-6 of the Foundation and Similar Excise Tax
Regulations (26 CFR part 53) provides factors to be considered in
determining whether an entity manager knows or has reason to know
that a transaction is a prohibited tax shelter transaction.
---------------------------------------------------------------------------
Section 53.4965-4(a)(1) provides that a tax-exempt entity is a
``party'' to a prohibited tax shelter transaction if it facilitates a
prohibited tax shelter transaction by reason of its tax-exempt, tax-
indifferent, or tax-favored status. In addition, under Sec. 53.4965-
4(a)(2) and (b), the Secretary may issue published guidance to identify
tax-exempt entities by type, class, or role that will or will not be
treated as parties to a prohibited tax shelter transaction.
If the tax-exempt entity unknowingly becomes a party to a
prohibited tax shelter transaction, the section 4965 tax generally
equals the greater of (1) the product of the highest rate of tax under
section 11 of the Code (currently 21 percent) and the tax-exempt
entity's net income attributable to the prohibited tax shelter
transaction, or (2) the product of the highest rate of tax under
section 11 and 75 percent of the proceeds received by the tax-exempt
entity that are attributable to the prohibited tax shelter transaction.
If the tax-exempt entity knew or had reason to know that the
transaction was a prohibited tax shelter transaction at the time the
tax-exempt entity became a party to the transaction, the section 4965
tax increases to the greater of (1) 100 percent of the tax-exempt
entity's net income attributable to the prohibited tax shelter
transaction, or (2) 75 percent of the tax-exempt entity's proceeds
attributable to the prohibited tax shelter transaction.
The terms ``net income'' and ``proceeds'' are defined in Sec.
53.4965-8. In general, a tax-exempt entity's net income attributable to
a prohibited tax shelter transaction is its gross income derived from
the transaction, reduced by those deductions that are attributable to
the transaction and that would be allowed by chapter 1 of the Code
(chapter 1) if the tax-exempt entity were treated as a taxable entity
for this purpose, and further reduced by the taxes imposed by subtitle
D of the Code (other than the section 4965 tax) with respect to the
transaction. In the case of a tax-exempt entity that is a party to the
transaction by reason of facilitating a prohibited tax shelter
transaction by reason of its tax-exempt, tax-indifferent,
[[Page 20572]]
or tax-favored status, the term ``proceeds,'' solely for purposes of
section 4965, means the gross amount of the tax-exempt entity's
consideration for facilitating the transaction, not reduced for any
costs or expenses attributable to the transaction. Published guidance
with respect to a particular prohibited tax shelter transaction may
designate additional amounts as proceeds from the transaction for
purposes of section 4965. In addition, for all tax-exempt entities that
are parties to a prohibited tax shelter transaction, any amount that is
a gift or a contribution to a tax-exempt entity and that is
attributable to a prohibited tax shelter transaction is treated as
proceeds for purposes of section 4965, unreduced by any associated
expenses.
B. Entity Manager Tax
The amount of the entity manager tax determined under section
4965(b)(2) on an entity manager (as defined in section 4965(d)) equals
$20,000 for each instance that the manager approves the tax-exempt
entity as (or otherwise causes such entity to be) a party to a
prohibited tax shelter transaction and knows or has reason to know that
the transaction is a prohibited tax shelter transaction. This liability
is not joint and several.
C. Disclosures
Section 53.6011-1 requires that a tax-exempt entity subject to the
section 4965 excise tax must file Form 4720, Return of Excise Taxes
Under Chapters 41 and 42 of the Internal Revenue Code, to report the
liability and pay the tax due under section 4965(a)(1). Under Sec.
1.6033-5, a tax-exempt entity that is a party to a prohibited tax
shelter transaction must file Form 8886-T, Disclosure by Tax-Exempt
Entity Regarding Prohibited Tax Shelter Transaction, to disclose that
it is a party to a prohibited tax shelter transaction, the identity of
any other party (whether taxable or tax-exempt) to such transaction
that is known to the tax-exempt entity, and certain other information.
Under Sec. 1.6033-2, if the tax-exempt entity is required to file Form
990, Return of Organization Exempt From Income Tax, it must disclose on
that form that it is a party to a prohibited tax shelter transaction,
whether any taxable party notified the tax-exempt entity that it was or
is a party to a prohibited tax shelter transaction, and whether the
tax-exempt entity filed Form 8886-T.
Section 6011(g) and Sec. 301.6011(g)-1 provide that any taxable
party to a prohibited tax shelter transaction must disclose to each
tax-exempt entity that the taxable party knows or has reason to know is
a party to such transaction that the transaction is a prohibited tax
shelter transaction.
IV. Charitable Remainder Annuity Trusts (CRATs)
For purposes of section 664 of the Code, section 664(d)(1) provides
that a charitable remainder annuity trust (CRAT) is a trust:
(A) From which a sum certain (which is not less than 5 percent nor
more than 50 percent of the initial fair market value (FMV) of all
property placed in trust) is to be paid, not less often than annually,
to one or more persons (at least one of which is not an organization
described in section 170(c), and, in the case of individuals, only to
an individual who is living at the time of the creation of the trust)
for a term of years (not in excess of 20 years) or for the life or
lives of such individual or individuals;
(B) From which no amount other than the payments described in
section 664(d)(1)(A) and other qualified gratuitous transfers described
in section 664(d)(1)(C) may be paid to or for the use of any person
other than an organization described in section 170(c);
(C) Whose remainder interest, following the termination of the
payments described in section 664(d)(1)(A), is to be transferred to, or
for the use of, an organization described in section 170(c) or is to be
retained by the trust for such a use or, to the extent the remainder
interest is in qualified employment securities (as defined by section
664(g)(4)), all or part of such securities are to be transferred to an
employee stock ownership plan (as defined in section 4975(e)(7) of the
Code) in a qualified gratuitous transfer (as defined by 664(g)); and
(D) Whose remainder interest has a value (determined under section
7520) of at least 10 percent of the initial net FMV of all property
placed in the trust.
Section 664(b) provides, in part, that amounts distributed by a
CRAT are considered as having the following characteristics in the
hands of a beneficiary to whom the annuity described in section
664(d)(1)(A) is paid:
(1) First, as amounts of income (other than gains, and amounts
treated as gains, from the sale or other disposition of capital assets)
includible in gross income to the extent of such income of the trust
for the year and such undistributed income of the trust for prior
years;
(2) Second, as a capital gain to the extent of the capital gain of
the trust for the year and the undistributed capital gain of the trust
for prior years;
(3) Third, as other income to the extent of such income of the
trust for the year and such undistributed income of the trust for prior
years; and
(4) Fourth, as a distribution of trust corpus.
Under section 664(c)(1), a CRAT is not subject to any tax imposed
by subtitle A of the Code. Section 664(c)(2), in part, imposes an
excise tax on a CRAT that has unrelated business taxable income (within
the meaning of section 512, determined as if part III of subchapter F
of chapter 1 applies to such trust) for a taxable year. That excise tax
is equal to the amount of such unrelated business taxable income.
V. Tax Avoidance Transactions Using a CRAT
The Treasury Department and the IRS are aware of transactions in
which taxpayers attempt to use a CRAT and a single premium immediate
annuity (SPIA) to permanently avoid recognition of ordinary income and/
or capital gain. Taxpayers engaging in these transactions claim that
distributions from the trust are not taxable to the beneficiaries as
ordinary income or capital gain under section 664(b) because the
distributions constitute the trust's unrecovered investment in the
SPIA, thus claiming that a significant portion of the distributions is
excluded from gross income under section 72(b)(2) of the Code.
Taxpayers also claim that the trust qualifies as a CRAT and thus is not
subject to tax on the trust's realized ordinary income or capital gain
under section 664(c)(1), even though the trust may not meet all of the
requirements of section 664(d)(1).
In these transactions, a grantor creates a trust purporting to
qualify as a CRAT under section 664. Generally, the grantor funds the
trust with property having a FMV in excess of its basis (appreciated
property) such as interests in a closely-held business, and/or assets
used or produced in a trade or business. The trust then sells the
appreciated property and uses some or all of the proceeds from the sale
of the contributed property to purchase an annuity. On a Federal income
tax return, the beneficiary of the trust treats the annuity amount
payable from the trust as if it were, in whole or in part, an annuity
payment subject to section 72,\2\ instead of as carrying out to the
beneficiary amounts in the ordinary
[[Page 20573]]
income and capital gain tiers of the trust in accordance with section
664(b).
---------------------------------------------------------------------------
\2\ Section 72 governs the tax treatment of payments received as
an annuity, and generally causes only the portion of each payment in
excess of the investment in the contract (basis) to be included in
the recipient's gross income.
---------------------------------------------------------------------------
As result of treating section 72 as applying to the amounts
received (typically paid by an insurance company) as part of the
annuity amount, the beneficiary reports as income only a small portion
of the amount the beneficiary received from the SPIA. The beneficiary
treats the balance of the annuity amount as an excluded portion
representing a return of investment.\3\ The beneficiary thus claims
that the beneficiary is taxed as if the beneficiary were the owner of
the SPIA, rather than the SPIA being an asset owned by the CRAT, which
the trustee purchased to fund the annuity amount payable from the
trust. Under the beneficiary's theory, until the entire investment in
the SPIA has been recovered, the only portion of the annuity amount
includable in the beneficiary's income is that portion of the SPIA
annuity required to be included in income under section 72. The
beneficiary also maintains that the distribution is not subject to
section 664(b), which would treat a substantial portion of the annuity
amount as gain attributable to the sale of the appreciated property
contributed to the CRAT.
---------------------------------------------------------------------------
\3\ The beneficiary also claims that section 72(u) does not
apply because the SPIA is an ``immediate annuity'' under section
72(u)(3)(E).
---------------------------------------------------------------------------
The trustee also might take the position that the transfer of the
appreciated property to the purported CRAT gives those assets a step-up
in basis to FMV as if they had been sold to the trust. The transfer of
property to a CRAT, however, does not give those assets a step-up in
basis to FMV, as if they had been sold to the trust, giving the trust a
cost basis under section 1012 of the Code. Instead, the transfer to the
CRAT is a gift for Federal tax purposes. When a grantor transfers
appreciated property to a CRAT, the CRAT's basis in the assets is
determined under section 1015 of the Code. Under section 1015(a) and
(d), property transferred by gift (whether or not in trust) retains its
basis in the hands of the donor, increased (but not above FMV) by any
gift tax paid on the transfer.
The claimed application of sections 664 and 72 to the transaction
is incorrect. Proper application of the rules of sections 664 and 72 to
the transaction results in annual ordinary income from the annuity
payments from the SPIA being added to the section 664(b)(1) (ordinary
income) tier of the CRAT's income each year, and a one-time amount
being added to the section 664(b)(2) (capital gains) tier at the time
of the sale of the property by the CRAT (assuming the asset is of a
kind to produce capital gain). Assuming no other activity in the CRAT,
under section 664(b), the beneficiary of the CRAT must treat the
annuity amount each year as first consisting of the ordinary income
portion of the annuity payments from the SPIA. The balance of the
annuity amount must be treated as consisting of any accumulated
ordinary income of the CRAT, then accumulated capital gain, and then
other income of the CRAT, only reaching non-taxable corpus to the
extent these three accounts have been exhausted.
In addition, certain features of the trust may cause the trust to
fail to meet all of the requirements of section 664(d)(1). While the
trust instrument generally resembles one of the eight sample CRAT forms
provided in Rev. Proc. 2003-53, 2003-2 C.B. 230; Rev. Proc. 2003-54,
2003-2 C.B. 236; Rev. Proc, 2003-55, 2003-2 C.B. 242; Rev. Proc. 2003-
56, 2003-2 C.B. 249; Rev. Proc. 2003-57, 2003-2 C.B. 257; Rev. Proc.
2003-58, 2003-2 C.B. 262; Rev. Proc. 2003-59, 2003-2 C.B 268; and Rev.
Proc. 2003-60, 2003-2 C.B. 274 (Sample CRAT Revenue Procedures), it
might have one or more significant modifications. For example, the
trust instrument might provide that, in each taxable year of the trust,
the trustee must pay to the beneficiary during the annuity period, an
annuity amount equal to the greater of (1) an amount which meets the
requirements of section 664(d)(1)(A) or (2) the payments received by
the trustee from one or more SPIAs purchased by the trustee.
The trust instrument also might provide for a current payment to an
organization described in section 170(c) (Charitable Remainderman) in
lieu of the payment of the remainder interest described in section
664(d)(1)(C). For example, the trust instrument might state that, in
lieu of transferring the remainder amount required pursuant to section
664(d)(1)(C) (Remainder Interest) to the Charitable Remainderman, the
trustee, upon the availability of adequate funding, currently may pay
to the Charitable Remainderman a cash sum equal to at least 10 percent
of the initial FMV of the trust property plus a nominal amount of cash.
The trust agreement also might provide that the trustee cannot make a
distribution in kind to satisfy this cash distribution. This payment,
equal to at least 10 percent of the initial FMV of the trust property,
would be the only payment to the Charitable Remainderman. The governing
instrument of a CRAT may provide for an amount other than the annuity
amount described in Sec. 1.664-2(a)(1) to be paid (or to be paid in
the discretion of the trustee) to an organization described in Sec.
170(c) provided that, in the case of distributions in kind, the
adjusted basis of the property distributed is fairly representative of
the adjusted basis of the property available for payment on the date of
payment. See Sec. 1.664-2(a)(4). However, nowhere in section
664(d)(1)(D) does it permit a current payment, determined based on the
value of the trust at its funding, to be made in lieu of, and as a
substitute for, the required payment of the remainder interest (that
is, the entire corpus of the trust at termination of the annuity
period) described in section 664(d)(1)(C) to the Charitable
Remainderman.
The significant modifications identified in the prior paragraphs
deviate from the Sample CRAT Revenue Procedures in ways that prevent
the qualification of the trust as a valid CRAT under section 664,
regardless of the actual administration of the CRAT. These
modifications are made in these transactions in order to effectuate the
structure. Specifically, a provision authorizing the payment of an
annuity amount in excess of the amount described in section
664(d)(1)(A), and a provision authorizing a current payment in lieu of
the payment of the remainder interest described in section
664(d)(1)(C), violate mandatory requirements of a valid CRAT.
VI. Purpose of Proposed Regulations
On March 3, 2022, the Sixth Circuit issued an order in Mann
Construction v. United States, 27 F.4th 1138, 1147 (6th Cir. 2022),
holding that Notice 2007-83, 2007-2 C.B. 960, which identified certain
trust arrangements claiming to be welfare benefit funds and involving
cash value life insurance policies as listed transactions, violated the
Administrative Procedure Act (APA), 5 U.S.C. 551-559, because the
notice was issued without following the notice-and-comment procedures
required by section 553 of the APA. The Sixth Circuit reversed the
decision of the district court, which held that Congress had authorized
the IRS to identify listed transactions without notice and comment. See
Mann Construction, Inc. v. United States, 539 F.Supp.3d 745, 763 (E.D.
Mich. 2021).
Relying on the Sixth Circuit's analysis in Mann Construction, three
district courts and the Tax Court have concluded that IRS notices
identifying listed transactions were improperly issued because they
were issued without following the APA's notice and comment procedures.
See Green Rock, LLC v. IRS, 2023 WL 1478444 (N.D. AL.,
[[Page 20574]]
February 2, 2023) (Notice 2017-10); GBX Associates, LLC, v. United
States, 1:22cv401 (N.D. Ohio, Nov. 14, 2022) (same); Green Valley
Investors, LLC, et al. v. Commissioner, 159 T.C. No. 5 (Nov. 9, 2022)
(same); see also CIC Services, LLC v. IRS, 2022 WL 985619 (E.D. Tenn.
March 21, 2022), as modified by 2022 WL 2078036 (E.D. Tenn. June 2,
2022) (Notice 2016-66, identifying a transaction of interest).
The Treasury Department and the IRS disagree with the Sixth
Circuit's decision in Mann Construction and the subsequent decisions
that have applied that reasoning to find other IRS notices invalid and
are continuing to defend the validity of notices identifying
transactions as listed transactions in circuits other than the Sixth
Circuit. At the same time, however, to avoid any confusion and to
ensure consistent enforcement of the tax laws throughout the nation,
the Treasury Department and the IRS are issuing these proposed
regulations to identify certain charitable remainder trust transactions
as listed transactions for purposes of all relevant provisions of the
Code and Treasury Regulations.
These proposed regulations propose to identify the charitable
remainder trust transactions described in proposed Sec. 1.6011-15(b),
and substantially similar transactions, as listed transactions for
purposes of Sec. 1.6011-4(b)(2) and sections 6111 and 6112. In
addition, they inform taxpayers that participate in these transactions,
and persons who act as material advisors with respect to these
transactions, that they would need to disclose the transaction in
accordance with the final regulations and the regulations issued under
sections 6011 and 6111. Material advisors must also maintain lists as
required by section 6112.
Explanation of Provisions
I. Charitable Remainder Annuity Trust Transaction
Proposed Sec. 1.6011-15(a) would identify a transaction that is
the same as, or substantially similar to, the transaction described in
proposed Sec. 1.6011-15(b) as a listed transaction for purposes of
Sec. 1.6011-4(b)(2). ``Substantially similar'' is defined in Sec.
1.6011-4(c)(4) to include any transaction that is expected to obtain
the same or similar types of tax consequences and that is either
factually similar or based on the same or a similar tax strategy.
A transaction is described in proposed Sec. 1.6011-15(b) if it
includes the following elements:
(i) The grantor creates a trust purporting to qualify as a CRAT
under section 664;
(ii) The grantor funds the trust with property having a FMV in
excess of its basis (contributed property);
(iii) The trustee sells the contributed property;
(iv) The trustee uses some or all of the proceeds from the sale of
the contributed property to purchase an annuity; and
(v) On a Federal income tax return, the beneficiary of the trust
(Beneficiary) treats the amount payable from the trust as if it were,
in whole or in part, an annuity payment subject to section 72, instead
of as carrying out to the Beneficiary amounts in the ordinary income
and capital gain tiers of the trust in accordance with section 664(b).
II. Participants
Whether a taxpayer has participated in the listed transaction
described in proposed Sec. 1.6011-15(b) is determined under Sec.
1.6011-4(c)(3)(i)(A). Participants include any person whose tax return
reflects tax consequences or a tax strategy described in proposed Sec.
1.6011-15(b). These tax consequences include those tax consequences
described in proposed Sec. 1.6011-15(b) that would affect any gift tax
return, whether or not such gift tax return was filed. See Sec.
25.6011-4. A taxpayer also has participated in a transaction described
in proposed Sec. 1.6011-15(b) if the taxpayer knows or has reason to
know that the taxpayer's tax benefits are derived directly or
indirectly from tax consequences, or a tax strategy, described in
proposed Sec. 1.6011-15(b).
III. Material Advisors
Material advisors who make a tax statement with respect to
transactions identified as listed transactions in proposed Sec.
1.6011-15(b) would have disclosure and list maintenance obligations
under sections 6111 and 6112. See Sec. Sec. 301.6111-3 and 301.6112-1.
One of the requirements to be a material advisor under section
6111(b)(1) is that the person must directly or indirectly derive gross
income in excess of the threshold amount provided in 6111(b)(1)(B) for
providing material aid, assistance, or advice with respect to the
listed transaction. That threshold in the case of a listed transaction
is reduced to $10,000 if substantially all of the tax benefits are
provided to natural persons (looking through any partnerships, S
corporations, or trusts), or to $25,000 for any other transaction. See
Sec. 301.6111-3(b)(3)(i)(B). The regulations under section 6111
provide that gross income includes all fees for a tax strategy, for
services for advice (whether or not tax advice), and for the
implementation of a reportable transaction. See Sec. 301.6111-
3(b)(2)(ii). However, a fee does not include amounts paid to a person,
including an advisor, in that person's capacity as a party to the
transaction. See Sec. 301.6111-3(b)(3)(ii).
IV. Effect of Participating in Listed Transaction Described in Proposed
Sec. 1.6011-15(b)
Participants required to disclose these transactions under Sec.
1.6011-4 who fail to do so will be subject to penalties under section
6707A. Such disclosure also must include any gift tax consequences. See
Sec. 25.6011-4. Participants required to disclose these transactions
under Sec. 1.6011-4 who fail to do so also are subject to an extended
period of limitations under section 6501(c)(10). Material advisors
required to disclose these transactions under section 6111 who fail to
do so are subject to penalties under section 6707. Material advisors
required to maintain lists of investors under section 6112 who fail to
do so (or who fail to provide such lists when requested by the IRS) are
subject to penalties under section 6708(a). In addition, the IRS may
impose other penalties on persons involved in these transactions or
substantially similar transactions, including accuracy-related
penalties under section 6662 or section 6662A, the penalty under
section 6694 for understatements of a taxpayer's liability by a tax
return preparer, the penalty under section 6700 for promoting abusive
tax shelters, and the penalty under section 6701 for aiding and
abetting understatement of tax liability.
In addition, material advisors have disclosure requirements with
regard to transactions occurring in prior years. However,
notwithstanding Sec. 301.6111-3(b)(4)(i) and (iii), material advisors
are required to disclose only if they have made a tax statement on or
after [DATE 6 YEARS BEFORE DATE OF PUBLICATION OF FINAL RULE].
Because the IRS will take the position that taxpayers are not
entitled to the purported tax benefits of the listed transactions
described in the proposed regulations, taxpayers who have filed tax
returns taking the position that they were entitled to the purported
tax benefits should consider filing amended returns or otherwise ensure
that their transactions are disclosed properly.
V. Role of Charitable Remainderman in the Transaction
As stated in section 1 of this Explanation of Provisions, the
[[Page 20575]]
transaction described in proposed Sec. 1.6011-15(b) attempts to use a
CRAT under section 664 to permanently avoid recognition of ordinary
income and/or capital gain on the sale of contributed property having a
FMV in excess of its basis. Under the mandatory requirements of section
664(d), a trust does not qualify as a CRAT unless, following the
termination of the annuity payments described in section 664(d)(1)(A),
the Remainder Interest is to be transferred to or for the use of an
organization described in section 170(c).
A. Charitable Remainderman as a Party to a Transaction Under Section
4965
As stated in section III of the Background, section 4965 provides,
in part, that, if a transaction is a prohibited tax shelter transaction
at the time a tax-exempt entity (which includes an organization
described in section 170(c), other than the United States) becomes a
party to the transaction, the entity must pay the section 4965 tax for
the taxable year and any subsequent taxable year as determined under
section 4965(b)(1). Section 4965(e)(1) provides in part that the term
``prohibited tax shelter transaction'' means any listed transaction
(within the meaning of section 6707A(c)(2)). A tax-exempt entity that
is a party to a prohibited tax shelter transaction generally is subject
to various reporting and disclosure obligations. Additionally, an
entity manager is subject to the entity manager tax imposed by section
4965(a)(2) if the entity manager approves the tax-exempt entity as a
party (or otherwise causes the entity to be a party) to a prohibited
tax shelter transaction and knows or has reason to know that the
transaction is a prohibited tax shelter transaction. Section 53.4965-
4(a) provides in part that a tax-exempt entity is a ``party'' to a
prohibited tax shelter transaction if it facilitates a prohibited tax
shelter transaction by reason of its tax-exempt, tax-indifferent, or
tax-favored status.
The trust used in a transaction identified as a listed transaction
in proposed Sec. 1.6011-15(a) would not qualify as a CRAT unless the
entire Remainder Interest is required to be transferred to or for the
use of a Charitable Remainderman. Thus, the tax-exempt entity that the
CRAT designates for the Remainder Interest facilitates the transaction
by reason of its tax-exempt status because, absent that status, the
CRAT would not satisfy the mandatory requirement of section
664(d)(1)(C). Accordingly, that designated tax-exempt entity would meet
the definition of a party to a prohibited tax shelter transaction in
Sec. 53.4965-4(a)(1).
However, notwithstanding the general rule in Sec. 53.4965-4(a),
Sec. 53.4965-4(b) provides that published guidance may identify, by
type, class, or role, which tax-exempt entities will or will not be
treated as parties to a prohibited tax shelter transaction. The
Treasury Department and the IRS understand that, in a transaction
described in proposed Sec. 1.6011-15(b), an organization described in
section 170(c) that is designated as the Charitable Remainderman might
not become aware of its Remainder Interest in the purported CRAT until
it receives a distribution from the trust. In that situation, it may be
difficult for the organization described in section 170(c) to determine
when section 4965 excise taxes and related reporting requirements
apply. For this reason, these proposed regulations would provide that
an organization described in section 170(c) that the purported CRAT
designates as the recipient of the Remainder Interest will not be
treated as a party under section 4965 to the listed transaction
described in proposed Sec. 1.6011-15 solely by reason of its status as
a Charitable Remainderman.
B. Participation by a Charitable Remainderman
As stated in section II of the Background, a taxpayer has
participated in a listed transaction if the taxpayer's tax return
reflects tax consequences or a tax strategy described in this proposed
regulation. See Sec. 1.6011-4(c)(3)(i)(A). Published guidance may
identify other types or classes of persons that will be treated as
participants in a listed transaction. Published guidance also may
identify types or classes of persons that will not be treated as
participants in a listed transaction. In general, the Treasury
Department and the IRS do not expect that an organization described in
section 170(c), whose only role or interest in the transaction
described in these proposed regulations is as a Charitable
Remainderman, would meet the definition of a participant under Sec.
1.6011-4(c)(3)(i)(A). Nevertheless, to avoid potential uncertainty, the
proposed regulations provide that an organization described in section
170(c) that the purported CRAT designates as the recipient of the
Remainder Interest is not treated as a participant in the listed
transaction described in these proposed regulations solely by reason of
its status as a Charitable Remainderman.
C. Charitable Remainderman as a Material Advisor
As stated in section III of the Background, a person is a material
advisor with respect to a transaction if the person provides any
material aid, assistance, or advice with respect to organizing,
managing, promoting, selling, implementing, insuring, or carrying out
any reportable transaction, and directly or indirectly derives gross
income in excess of the threshold amount for the material aid,
assistance, or advice. See section 6111(b)(1)(A). The regulations
provide that gross income includes all fees for a tax strategy, for
services or advice (whether or not tax advice), and for the
implementation of a reportable transaction. However, a fee does not
include amounts paid to a person, including an advisor, in that
person's capacity as a party to the transaction. See Sec. 301.6111-
3(b)(3)(ii)).
The Treasury Department and the IRS request comments on whether the
Charitable Remainderman ever provides material aid, assistance, or
advice with respect to transactions described in proposed Sec. 1.6011-
15(b) and the nature of the services being provided. The Treasury
Department and the IRS also request comments on what fees the
Charitable Remainderman receives, either directly or indirectly, for
providing such material aid, assistance or advice.
Comments and Public Hearing
Before these proposed amendments to the regulations are adopted as
final regulations, consideration will be given to comments regarding
the notice of proposed rulemaking that are submitted timely to the IRS
as prescribed under the ADDRESSES section. The Treasury Department and
the IRS request comments on all aspects of the proposed regulations.
All comments will be made available at https://www.regulations.gov.
Once submitted to the Federal eRulemaking Portal, comments cannot be
edited or withdrawn.
A public hearing has been scheduled for July 11, 2024, beginning at
10 a.m. ET, in the Auditorium at the Internal Revenue Service Building,
1111 Constitution Avenue NW, Washington, DC. Due to the building
security procedures, visitors must enter at the Constitution Avenue
entrance. In addition, all visitors must present photo identification
to enter the building. Because of access restrictions, visitors will
not be admitted beyond the immediate entrance area more than 30 minutes
before the hearing starts. Participants alternatively may attend the
public hearing by telephone.
The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who
wish to present comments at the hearing must submit an outline of the
topics to be discussed and the time to be devoted to
[[Page 20576]]
each topic by May 24, 2024. A period of 10 minutes will be allocated to
each person for making comments. An agenda showing the scheduling of
the speakers will be prepared after the deadline for receiving outlines
has passed. Copies of the agenda will be free of charge at the hearing.
If no outline of topics to be discussed at the hearing is received by
May 24, 2024, the public hearing will be cancelled. If the public
hearing is cancelled, a notice of cancellation of the public hearing
will be published in the Federal Register.
Individuals who want to testify in person at the public hearing
must send an email to [email protected] to have your name added to
the building access list. The subject line of the email must contain
the regulation number (REG-108761-22) and the language ``TESTIFY In
Person''. For example, the subject line may say: Request to TESTIFY In
Person at Hearing for REG-108761-22.
Individuals who want to testify by telephone at the public hearing
must send an email to [email protected] to receive the telephone
number and access code for the hearing. The subject line of the email
must contain the regulation number REG-108761-22 and the language
``TESTIFY Telephonically''. For example, the subject line may say:
Request to TESTIFY Telephonically at Hearing for REG-108761-22.
Individuals who want to attend the public hearing in person without
testifying also must send an email to [email protected] to have
their names added to the building access list. The subject line of the
email must contain the regulation number REG-108761-22 and the language
``ATTEND in Person''. For example, the subject line may say: Request to
ATTEND Hearing In Person REG-108761-22. Requests to attend the public
hearing must be received by 5 p.m. ET on July 9, 2024.
Individuals who want to attend the public hearing by telephone
without testifying also must send an email to [email protected] to
receive the telephone number and access code for the hearing. The
subject line of email must contain the regulation number (REG-108761-22
and the language ``ATTEND Hearing Telephonically''. For example, the
subject line may say: Request to ATTEND Hearing Telephonically for REG-
108761-22. Requests to attend the public hearing must be received by 5
p.m. ET on July 9, 2024.
Hearings will be made accessible to people with disabilities. To
request special assistance during a hearing, please contact the
Publication and Regulations Section of the Office of Associate Chief
Counsel (Procedure and Administration) by sending an email to
[email protected] (preferred) or by telephone at (202) 317-6901
(not a toll-free number) at least July 8, 2024.
Applicability Date
Proposed Sec. 1.6011-15 would identify charitable remainder
annuity trust transactions described in proposed Sec. 1.6011-15(b),
and transactions that are substantially similar to those transactions,
as listed transactions, effective as of the date the final regulations
are published in the Federal Register.
Special Analyses
I. Paperwork Reduction Act
The estimated number of taxpayers impacted by these proposed
regulations is between 50 to 100 per year. No burden on these taxpayers
is imposed by these proposed regulations. Instead, the collection of
information contained in these proposed regulations is reflected in the
collection of information for Forms 8886 and 8918 that have been
reviewed and approved by the Office of Management and Budget (OMB) in
accordance with the Paperwork Reduction Act (44 U.S.C. 3507(c)) under
control numbers 1545-1800 and 1545-0865.
To the extent there is a change in burden as a result of these
regulations, the change in burden will be reflected in the updated
burden estimates for Forms 8886 and 8918. The requirement to maintain
records to substantiate information on Forms 8886 and 8918 already is
contained in the burden associated with the control number for the
forms and remains unchanged.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless the collection of
information displays a valid OMB control number.
II. Regulatory Flexibility Act
When an agency issues a proposed rulemaking, the Regulatory
Flexibility Act (5 U.S.C. chapter 6) (Act) requires the agency to
``prepare and make available for public comment an initial regulatory
flexibility analysis'' that ``describe[s] the impact of the proposed
rule on small entities.'' 5 U.S.C. 603(a). The term ``small entities''
is defined in 5 U.S.C. 601 to mean ``small business,'' ``small
organization,'' and ``small governmental jurisdiction,'' which are also
defined in 5 U.S.C. 601. Small business size standards define whether a
business is ``small'' and have been established for types of economic
activities, or industry, generally under the North American Industry
Classification System (NAICS). See Title 13, Part 121 of the Code of
Federal Regulations (titled ``Small Business Size Regulations''). The
size standards look at various factors, including annual receipts,
number of employees, and amount of assets, to determine whether the
business is small. See Title 13, Part 121.201 of the Code of Federal
Regulations for the Small Business Size Standards by NAICS Industry.
Section 605 of the Act provides an exception to the requirement to
prepare an initial regulatory flexibility analysis if the agency
certifies that the proposed rulemaking will not have a significant
economic impact on a substantial number of small entities. The Treasury
Department and the IRS hereby certify that these proposed regulations
will not have a significant economic impact on a substantial number of
small entities. This certification is based on the fact that the
majority of the effect of the proposed regulations falls on trusts.
Further, the Treasury Department and the IRS expect that the reporting
burden is low; the information sought is necessary for regular annual
return preparation and ordinary recordkeeping.
Pursuant to section 7805(f) of the Code, this notice of proposed
rulemaking has been submitted to the Chief Counsel for the Office of
Advocacy of the Small Business Administration for comment on its impact
on small business.
III. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA)
requires that agencies assess anticipated costs and benefits and take
certain other actions before issuing a final rule that includes any
Federal mandate that may result in expenditures in any one year by a
State, local, or Tribal government, in the aggregate, or by the private
sector, of $100 million (updated annually for inflation). This proposed
rule does not include any Federal mandate that may result in
expenditures by State, local, or Tribal governments, or by the private
sector in excess of that threshold.
IV. Executive Order 13132: Federalism
Executive Order 13132 (Federalism) prohibits an agency from
publishing any rule that has federalism implications if the rule either
imposes substantial, direct compliance costs on State and local
governments, and is not required by statute, or preempts State law,
unless the agency meets the consultation and funding requirements of
section 6 of the Executive order. This proposed rule
[[Page 20577]]
does not have federalism implications and does not impose substantial
direct compliance costs on State and local governments or preempt State
law within the meaning of the Executive order.
V. Regulatory Planning and Review
Pursuant to the Memorandum of Agreement, Review of Treasury
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory
actions issued by the IRS are not subject to the requirements of
section 6 of Executive Order 12866, as amended. Therefore, a regulatory
impact assessment is not required.
Statement of Availability of IRS Documents
Guidance cited in this preamble is published in the Internal
Revenue Bulletin and is available from the Superintendent of Documents,
U.S. Government Publishing Office, Washington, DC 20402, or by visiting
the IRS website at https://www.irs.gov.
Drafting Information
The principal author of these proposed regulations is Charles D.
Wien, Office of Associate Chief Counsel (Passthroughs & Special
Industries). However, other personnel from the IRS and the Treasury
Department participated in the development of these regulations.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, the Treasury Department and the IRS propose to amend
26 CFR part 1 as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
Section 1.6011-15 also issued under 26 U.S.C. 6001 and 26 U.S.C.
6011 * * *
* * * * *
0
Par. 2. Section 1.6011-15 is added to read as follows:
Sec. 1.6011-15 Charitable Remainder Annuity Trust Listed Transaction.
(a) In general. Transactions that are the same as, or substantially
similar to, a transaction described in paragraph (b) of this section
are identified as listed transactions for purposes of Sec. 1.6011-
4(b)(2).
(b) Charitable remainder annuity trusts. A transaction is described
in this paragraph (b) if:
(1) The grantor creates a trust purporting to qualify as a
charitable remainder annuity trust under section 664(d)(1) of the
Internal Revenue Code (Code);
(2) The grantor funds the trust with property having a fair market
value in excess of its basis (contributed property);
(3) The trustee sells the contributed property;
(4) The trustee uses some or all of the proceeds from the sale of
the contributed property to purchase an annuity; and
(5) On a Federal income tax return, the beneficiary of the trust
treats the annuity amount payable from the trust as if it were, in
whole or in part, an annuity payment subject to section 72 of the Code,
instead of as carrying out to the beneficiary amounts in the ordinary
income and capital gain tiers of the trust in accordance with section
664(b).
(c) Participation--(1) In general. A taxpayer has participated in a
transaction identified as a listed transaction in paragraph (a) of this
section if the taxpayer's tax return reflects tax consequences or a tax
strategy described in this section as provided under Sec. 1.6011-
4(c)(3)(i)(A). These tax consequences include those tax consequences
that would affect any gift tax return, whether or not such gift tax
return was filed. See Sec. 25.6011-4 of this chapter.
(2) Treatment of charitable remainderman. An organization described
in section 170(c) of the Code that the purported Charitable Remainder
Annuity Trust designates as a recipient of the remainder interest
described in section 664(d)(1) is not treated as a participant under
Sec. 1.6011-4(c)(3)(i)(A) in the transaction described in this section
solely by reason of its status as a recipient of the remainder interest
described in section 664(d)(1).
(d) Treatment of charitable remainderman under section 4965. A tax-
exempt entity (as defined in section 4965 of the Code) that is an
organization described in section 170(c) and that the purported
Charitable Remainder Annuity Trust designates as a recipient of the
remainder interest described in section 664(d)(1) is not treated as a
party to the transaction described in this section for purposes of
section 4965 solely by reason of its status as a recipient of the
remainder interest described in section 664(d)(1).
(e) Applicability date. This section's identification of
transactions that are the same as, or substantially similar to, the
transaction described in paragraph (b) of this section as listed
transactions for purposes of Sec. 1.6011-4(b)(2) is effective on [date
of publication of final regulations in the Federal Register].
Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2024-06156 Filed 3-22-24; 8:45 am]
BILLING CODE 4830-01-P
