“When bad actors misuse charitable structures, directors and officers should understand that transparency can lead to scrutiny, accountability, and liability under the law.”
The US Dept. of the Treasury announced a new transparency initiative by the IRS in which the tax forms filed by non-profits will have to "provide clearer reporting on certain activities of tax-exempt organizations." The new provision will require clearer disclosure of "government contracts, government grants, and fiscal sponsorship arrangements."
Fiscal sponsor organizations are non-profits that allow other groups that have not applied for non-profit status with the IRS to come under the umbrella of their non-profit status and accept tax-deductible donations. The new rules will require fiscal sponsors to identify what they are funding under their non-profit status instead of allowing aggregate reporting, leaving it unknown as to what taxpayer dollars are paying for.
Many granting opportunities are only available to non-profit entities as well, and fiscal sponsors allow individuals and small groups that have not applied for nonprofit status. Just a list of fiscal sponsors in New York reveals 50 different umbrella organizations. Fiscal sponsors are not currently required to tell the IRS which groups they are sponsoring.
In a recent hearing in the House Ways and Means Committee on Foreign Influence in American Non-profits, fiscal sponsorships were identified as a way that money flows to fund groups that "have been fueling antisemitism, interfering in our elections, and spreading government propaganda."
"Many tax-exempt organizations allow other groups to operate under the umbrella of their tax-exempt status in a practice known as 'fiscal sponsorship,'" the Committee said. "In one extreme case, the Alliance for Global Justice fiscally sponsored a group designated as a foreign terrorist organization by the Biden Treasury Department.
"Form 990, the form all tax-exempt organizations are required to file, does not require any information about the projects that tax-exempt organizations may be fiscally sponsoring. Witnesses urged the Committee to examine reforms to the Form 990."
Speaking about the changes, Treasury Secretary Scott Bessent said "Public money and tax-exempt status demand public accountability. We are ending the days of hiding fraud, abuse, and extremist activity behind complicated nonprofit arrangements. When bad actors misuse charitable structures, directors and officers should understand that transparency can lead to scrutinty, accountability, and liability under the law."
The new regulations are still to be published and public comment is open ahead of the finalization of those changes.
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