26 CFR §1.643(a)-8

1. (a)Purpose and scope. This section is intended to prevent the avoidance of the purposes of the charitable remainder trust rules regarding the characterizations of distributions from those trusts in the hands of the recipients and should be interpreted in a manner consistent with this purpose. This section applies to all charitable remainder trusts described in section 664 and the beneficiaries of such trusts.
2. (b)Deemed sale by trust.
   1. (1)For purposes of section 664(b), a charitable remainder trust shall be treated as having sold, in the year in which a distribution of an annuity or unitrust amount is made from the trust, a pro rata portion of the trust assets to the extent that the distribution of the annuity or unitrust amount would (but for the application of this paragraph (b)) be characterized in the hands of the recipient as being from the category described in section 664(b)(4) and exceeds the amount of the previously undistributed
      1. (i)Cash contributed to the trust (with respect to which a deduction was allowable under section 170, 2055, 2106, or 2522); plus
      2. (ii)Basis in any contributed property (with respect to which a deduction was allowable under section 170, 2055, 2106, or 2522) that was sold by the trust.
   2. (2)Any transaction that has the purpose or effect of circumventing the rules in this paragraph (b) shall be disregarded.
   3. (3)For purposes of paragraph (b)(1) of this section, trust assets do not include cash or assets purchased with the proceeds of a trust borrowing, forward sale, or similar transaction.
   4. (4)Proper adjustment shall be made to any gain or loss subsequently realized for gain or loss taken into account under paragraph (b)(1) of this section.
3. (c)Examples. The following examples illustrate the rules of paragraph (b) of this section:
4. (d)Effective date. This section is applicable to distributions made by a charitable remainder trust after October 18, 1999.