The Tax Times

Friday, July 10, 2026

New IRS QDOT Rules: Key Updates for Cross-Border Estate Planning

The IRS has finalized long-overdue updates to the regulations governing qualified domestic trusts (QDOTs), modernizing rules that have remained largely unchanged since the 1990s. Issued as T.D. 10050 on July 10, 2026, these amendments are primarily technical but carry practical implications for estate planners working with noncitizen surviving spouses.

Background on QDOTs

QDOTs remain a critical planning tool for estates involving non-U.S. citizen spouses. Because the unlimited marital deduction under Internal Revenue Code Section 2056 is generally unavailable unless the surviving spouse is a U.S. citizen, QDOTs allow deferral of estate tax until distributions of principal or the surviving spouse’s death.

The regulatory framework governing QDOTs, however, has not kept pace with procedural and administrative changes over the past several decades. The newly finalized regulations address this gap.

Key Updates in the Final Regulations

The amendments focus on modernization rather than substantive policy shifts. The most relevant updates include:

· Valuation Clarifications: The regulations update how the value of QDOT assets is determined, aligning references with current valuation standards and eliminating outdated cross-references that no longer reflect current law or practice.

· Security Instrument Filing Requirements: Prior rules required certain security arrangements (such as bonds or letters of credit) to be filed with offices or officials that no longer exist or have since been reorganized. The final regulations revise these provisions to reflect current IRS administrative structures and filing procedures.

· Terminology and Organizational Updates: Numerous references to obsolete IRS titles, forms, and publications have been corrected. This includes updating terminology to align with the current Internal Revenue Manual and organizational structure of the Service.

Practical Implications for Practitioners

While these changes are largely technical, they are not merely cosmetic. Practitioners should take note of several practical considerations:

· Existing QDOT documents and compliance procedures should be reviewed to ensure consistency with updated filing locations and terminology.

· Estate administration teams should confirm that any required security instruments are directed to the appropriate, currently designated IRS offices.

· Template documents, internal checklists, and client-facing materials may require revision to reflect the updated regulatory language.

Why This Matters

For practitioners advising nonresident or noncitizen families, QDOT compliance is highly technical and often scrutinized. Even minor procedural missteps—such as improper filing of a security instrument—can jeopardize deferral treatment.

These updates reduce ambiguity by aligning the regulations with current administrative realities, which should, in theory, lower the risk of inadvertent noncompliance. However, they also require practitioners to revisit longstanding assumptions embedded in older templates and workflows.

Final Thoughts

T.D. 10050 is a reminder that even well-established areas of the Code can evolve through technical corrections. For firms handling cross-border estate planning, this is an opportune moment to audit QDOT-related procedures and ensure alignment with the updated rules.

Need Estate Tax Advice ?

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Marini & Associates, P.A.

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243)

Wednesday, July 8, 2026

IRS Targets Abusive CRAT Structures in New Final Regulations (IR-2026-82)

On July 8, 2026, the Treasury Department and IRS issued IR-2026-82 announcing that it issued final regulations formally identifying certain Charitable Remainder Annuity Trust (CRAT) structures as “listed transactions.” This designation significantly raises the compliance stakes for taxpayers and advisors involved in these arrangements, triggering mandatory disclosure requirements and potential penalties.

What the IRS Is Targeting

The regulations focus on transactions that attempt to improperly eliminate or defer recognition of ordinary income and capital gains through a purported CRAT structure.

In the typical fact pattern described by the IRS:

· A taxpayer contributes appreciated property (often a closely held business interest or business-use assets) to a purported CRAT.

· The CRAT sells the contributed property, generating significant gain.

· The trust then uses the proceeds to acquire a single premium immediate annuity (SPIA).

· The taxpayer claims that annuity distributions are only partially taxable, relying on a misapplication of Sections 72 and 664.

The intended result is a substantial distortion of the CRAT tier system, allowing taxpayers to avoid recognizing the full amount of gain that would otherwise flow out under the four-tier regime of Section 664.

Why the Structure Fails

The IRS takes the position that these transactions fundamentally misapply both:

· Section 664, which governs the ordering rules for CRAT distributions (ordinary income, capital gains, tax-exempt income, and return of corpus), and

· Section 72, which applies to annuity contracts but does not override CRAT distribution character rules.

In substance, the SPIA does not “convert” the character of the underlying income inside the CRAT. The trust’s realized gain retains its character and must be distributed accordingly under the statutory tier system.

Listed Transaction Consequences

By designating these arrangements as listed transactions, the IRS imposes strict reporting obligations:

· Participants must disclose involvement on Form 8886.

· Material advisors must file Form 8918 and maintain investor lists under Section 6112.

· Penalties may apply under Sections 6707A, 6707, and 6708 for failure to disclose or maintain required records.

The “substantially similar” standard also expands the reach of these rules beyond the exact fact pattern described.

Practical Implications for Advisors

For practitioners advising high-net-worth clients or closely held business owners, this development reinforces several key points:

· CRATs remain valid planning tools, but only when structured and operated in strict compliance with Section 664.

· Any attempt to “wrap” a CRAT around annuity products to alter income character should be treated as high risk.

· Due diligence on existing CRAT structures is critical, particularly where annuity products are involved.

· Prior transactions may require review for disclosure obligations or potential exposure.

Example

Consider a taxpayer who contributes a business interest with a million basis and million fair market value to a CRAT. After the CRAT sells the asset, it purchases a SPIA and distributes annuity payments to the taxpayer.

Under a proper application of Section 664, distributions should carry out capital gain from the sale. However, in the abusive structure, the taxpayer reports only a portion of each payment as taxable under Section 72—effectively deferring or avoiding recognition of the million gain. The IRS now explicitly identifies this treatment as improper and reportable.

Final Thoughts

This guidance is part of a broader enforcement trend targeting transactions that exploit technical mismatches between Code provisions. The IRS is signaling that it will continue to challenge structures that attempt to recharacterize income through intermediaries like CRATs.

Taxpayers and advisors should approach any CRAT strategy involving annuities or income “conversion” techniques with heightened scrutiny and ensure full compliance with disclosure rules where applicable.

Have an IRS Tax Problem?

Contact the Tax Lawyers at

Marini & Associates, P.A.

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243)

When Treasury Oversteps: Keysight, GILTI, and Post–Loper Bright Limits on Agency Power

Keysight in a nutshell

GILTI, enacted in the Tax Cuts and Jobs Act, was designed to impose current U.S. tax on certain low‑taxed foreign earnings of controlled foreign corporations (CFCs). Treasury identified what it viewed as a design flaw: when a CFC’s tax year did not align with the U.S. shareholder’s year, timing mismatches could arise between foreign‑law accounting and U.S. inclusions.

To address this, Treasury promulgated regulations—most notably Treas. Reg. § 1.951A‑2(c)(5)—that effectively reallocated or adjusted tested income across years to neutralize perceived timing distortions. Keysight, a U.S. multinational, filed a refund suit in the Court of Federal Claims attacking that “fix” and the way it impacted its GILTI calculations, including the government’s position on amortization deductions under section 197 within GILTI.

In a July 2026 decision, the Court of Federal Claims held the GILTI regulation invalid, concluding that Treasury had gone beyond the statute Congress actually enacted. The decision rejects the idea that Treasury can cure structural or timing mismatches by rewriting section 951A’s framework via regulation when Congress itself did not provide that solution.

Why the regulation fell: statutory limits after Loper Bright

Although Keysight is a tax case, its logic sits comfortably in the broader administrative law shift following the Supreme Court’s decision in Loper Bright Enterprises v. Raimondo. In Loper Bright, the Court curtailed the deference traditionally afforded to agencies in interpreting ambiguous statutes, emphasizing that it is the judiciary’s role—not the agency’s—to determine what the law means, and that “gap‑filling” cannot amount to rewriting statutory schemes under the guise of interpretation.

Keysight applies that same sensibility to GILTI. Treasury saw a mismatch problem with fiscal‑year CFCs and decided to fix it by regulation. The Court of Federal Claims, however, focused on statutory boundaries: section 951A lays out a detailed scheme for computing tested income, determining the inclusion, and coordinating timing, and the regulation’s cure could not be squared with that statutory architecture.

In effect, the court treats Treasury’s fix as policy‑driven rather than text‑driven. Where Loper Bright insists courts must independently construe statutes without reflexive deference to agency “solutions,” Keysight demonstrates what that looks like in the international tax context: if the statute doesn’t authorize the timing reallocation Treasury prefers, the regulation cannot stand—even if Treasury’s policy concerns are real.

Practical implications for multinationals

For U.S. multinationals with CFCs on fiscal years, Keysight has immediate practical consequences:

· It undercuts the government’s ability to rely on Treas. Reg. § 1.951A‑2(c)(5) to force timing adjustments that increase GILTI inclusions, at least for taxpayers similarly situated to Keysight.

· It invites taxpayers to revisit prior‑year GILTI computations where the now‑invalid regulation moved income into, or out of, particular years in a way that was unfavorable, and to evaluate refund or protective claims for open years.

· It strengthens arguments that existing deduction regimes—such as section 197 amortization—must be respected in GILTI computations where the statute, rather than regulation, leads to that result.

More broadly, Keysight will likely become a key citation for challenges to other TCJA regulations that “fix” perceived statutory flaws by stretching interpretive authority. In a post–Loper Bright world, courts are increasingly willing to ask whether the statute itself authorizes the agency’s solution; if it does not, the regulation is vulnerable even in complex tax areas.

What tax departments should do now

In light of Keysight and Loper Bright, tax departments and advisors should:

· Inventory situations where GILTI computations relied on Treas. Reg. § 1.951A‑2(c)(5) or similar “fix‑it” rules and quantify the impact on inclusions and deductions.

· Consider refund or protective claims for affected years, balancing potential benefits against controversy risk and IRS responses as the government reassesses its position.

· Monitor closely for IRS or Treasury reactions—whether in the form of litigation strategy, non‑acquiescence, new guidance, or a push for legislative change to address timing mismatches expressly.

For cross‑border clients, the key takeaway is that agency efforts to repair perceived statutory defects are now subject to much stricter judicial review. GILTI may have been designed quickly and imperfectly, but under Loper Bright and cases like Keysight, it is Congress—not Treasury—that must fix those imperfections.

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