Agency: U.S. Department of the Treasury and IRS
Subject 1: Identification of certain CRAT structures as listed transactions
Subject 2: Transfer-for-value and information-reporting rules for reportable policy sales, section 1035 exchanges, and life-insurance contract acquisitions in corporate reorganizations
Status: Final rules

What is a CRAT?
A Charitable Remainder Annuity Trust (CRAT) is a tax planning vehicle in which the grantor transfers assets to the trust, the trust makes fixed annuity payments to the grantor or designated persons for a specified period, and the remaining assets pass to a charitable organization at the end of the trust term.

Which CRAT structures are listed transactions?
IRS identified certain CRAT structures — particularly those that exploit tax advantages excessively or deviate from genuine charitable purpose — as listed transactions. Listed transaction status triggers mandatory disclosure obligations for participants in these structures and for material advisors who recommend or organize them.

Disclosure obligations

• Participants must report their participation in the listed transaction to the IRS
• Material advisors must file a disclosure with the IRS and maintain a client list when they recommend or organize a listed transaction for clients
• Failure to satisfy disclosure obligations results in significant penalties

Transfer-for-value rule
The transfer of life insurance policies for value is subject to special tax rules that limit the tax-exempt treatment of policy proceeds. The IRS's final rules clarify and expand reporting requirements in this area.

Reportable policy sales
The sale of life insurance policies in the secondary market — "life settlement" transactions — is subject to reporting obligations. The final rules clarify which transactions constitute a reportable policy sale and who bears the reporting obligation.

Section 1035 exchanges
Section 1035 exchanges, which allow tax-deferred replacement of insurance policies, may trigger reporting obligations under certain conditions.

Life insurance in corporate reorganizations
Acquisition of life insurance contracts in corporate mergers, transfers, and reorganizations requires special analysis under the transfer-for-value rules and reporting requirements.

Tax counsel and estate planners

• Review existing CRAT structures against the listed transaction criteria
• Assess disclosure obligations and make IRS filings if required
• Update material advisor status analysis
• Review CRAT structures and charitable planning arrangements in the client portfolio

Insurers and life insurance companies

• Update reportable policy sale and section 1035 exchange reporting obligations
• Align information reporting systems with final rule requirements

Life settlement investors and private equity

• Review life insurance policies in the portfolio against transfer-for-value and reporting requirements
• Update due diligence processes for new acquisitions

M&A counsel

• Update due diligence checklists covering the target company's life insurance policies
• Assess the tax and reporting consequences of life insurance contract acquisitions in corporate reorganizations
• Update tax representations and material advisor analyses

• Turkish-American charitable planning — Turkish-Americans engaged in charitable planning in the U.S. or Turkish nationals with U.S. assets should evaluate the listed transaction status of CRAT structures and disclosure obligations with their tax advisors
• Turkish companies' U.S. life insurance policies — Turkish companies or executives holding U.S. life insurance policies should review transfer-for-value and reporting requirements
• Turkish-American M&A transactions — In Turkish-American M&A transactions targeting U.S. companies, the tax due diligence scope covering the target company's life insurance policies should be expanded
• Private equity and life settlement — Turkish investors active in the U.S. life settlement market should assess the reporting and tax consequences of the final rules

This post is part of ULF New York’s monitoring series tracking U.S. regulatory developments and Turkish-American cross-border practice areas. It does not constitute legal advice.