Key Takeaways
- The Treasury and the IRS have announced a Form 990 transparency initiative aimed at clearer reporting on government grants, government contracts and fiscal sponsorship arrangements for certain tax-exempt organizations.
- No new reporting requirements apply yet, but the announcement signals increased scrutiny of how public funds move through charitable structures and how those flows appear on Form 990.
- Nonprofits that receive government funding or act as fiscal sponsors can begin preparing by reviewing documentation, classifications and governance practices so that they’re ready if proposed regulations introduce new requirements.
Potential Changes Could Increase Reporting Requirements for Nonprofits
The U.S. Department of the Treasury recently announced that the Internal Revenue Service (IRS) plans to revise Form 990 reporting requirements to improve transparency and oversight of certain tax-exempt organizations. The initiative is intended to provide greater visibility into government grants, government contracts and fiscal sponsorship arrangements while helping regulators identify potential fraud, abuse and misuse of funds.
Creative Planning Tax Insight
“For many nonprofits, this initiative is less about learning a new form and more about making sure the story you’re already telling through Form 990 is accurate, complete and consistent. If your organization receives government funding or sponsors projects, now‘s a good time to ask whether you could clearly explain who controls those dollars, how they’re used and how that would show up in public reporting.” – Brian Aronson, Tax Director, Partner
The Treasury emphasized that public money and tax-exempt status demand public accountability and greater clarity around funding sources and use of funds. Because Form 990 is generally available for public inspection, any clearer reporting that results from this initiative would likely affect not only tax administration but also how donors, media and watchdogs evaluate nonprofit activity.
Increased Focus on Government Funding Sources
A key objective of the proposal is enhanced reporting around government grants and contracts received by nonprofit organizations. The Treasury noted that these funding arrangements often involve significant amounts of public money and that additional disclosures could help both regulators and the public better understand how funds are received, classified and spent. The stated goal is to strengthen accountability and reduce opportunities for improper use of taxpayer resources.
In practice, this could mean clearer reporting about whether revenue is treated as a grant or contract, greater detail about funding sources and more granular information about specific use of public funds in programs or projects. Organizations with layered or complex government funding structures may face increased scrutiny and should expect questions about whether their Form 990 disclosures align with audited financials and internal reporting.
Nonprofits can begin preparing by inventorying government funding sources and confirming that they understand how each grant or contract is currently captured in Form 990 and other public reports. Leaders may find it helpful to revisit grant agreements, revenue classifications and audit committee oversight of financial reporting and risk to ensure they can trace funding from receipt through expenditure by specific grant or contract.
Greater Scrutiny of Fiscal Sponsorship Arrangements
The announcement also highlights fiscal sponsorship arrangements, which are commonly used structures that allow charitable projects to operate under the umbrella of an existing tax-exempt organization. While fiscal sponsorships serve many legitimate purposes, the Treasury cited concerns that some arrangements may make it difficult to identify who controls project funds and how those funds are ultimately used. Additional reporting requirements could increase transparency in these relationships and provide stakeholders with a clearer understanding of organizational oversight and financial responsibility.
Recent practitioner commentary suggests that future Form 990 revisions may call for more detailed disclosure of sponsored projects, including revenue, expenses, assets and governance structures. For sponsors, this could mean documenting decision-making authority, fund control and oversight in a way that’s easy to translate into public reporting on Form 990.
Sponsored projects and other charitable structures can be an effective way to test new initiatives without forming a separate entity, but they carry governance and compliance responsibilities that shouldn’t be overlooked. Nonprofit boards and executives may want to review fiscal sponsorship agreements to ensure they clearly describe decision-making authority, oversight mechanisms and how funds are controlled and reported on Form 990.
What Nonprofit Organizations Should Consider
Although the proposed changes are still under development, nonprofit leaders may want to begin evaluating how government funding and fiscal sponsorship arrangements are currently tracked and reported. Organizations that receive government grants or contracts, serve as fiscal sponsors or operate under a fiscal sponsorship model should pay close attention to future guidance from the Treasury and the IRS. Organizations reviewing their compliance posture more broadly may also want to revisit how IRS rules distinguish advocacy from lobbying.
To make this more actionable, nonprofit leaders might consider the following preparation checklist:
- Take stock of government grants, government contracts and other public funding sources, noting which programs or projects they support.
- Review how government funding is classified and disclosed in Form 990, audited financial statements and internal reports to confirm that the story is consistent and complete.
- Evaluate fiscal sponsorship agreements and related documentation to clarify who controls project funds, how oversight is exercised and how those relationships could be described in public reporting.
- Monitor developments related to proposed regulations and the public comment period so that your organization can respond to draft rules early rather than waiting for final changes.
Strong documentation and clear governance practices may become increasingly important if expanded reporting requirements are adopted. Focusing on completeness and greater clarity now can help nonprofits demonstrate that they’re prepared for increased scrutiny around public funds and charitable structures.
The Rulemaking Process Is Still Ahead
Importantly, the announcement doesn’t immediately change Form 990 filing requirements. The Treasury and the IRS have stated that proposed regulations will be issued and that organizations will have an opportunity to provide public comments before any changes become effective. The agencies also indicated that they’ll consider administrative feasibility, proportionality and reporting burden as part of the development process.
For nonprofits, this means there’s still time to digest the transparency initiative, assess potential impacts and weigh in through the public comment process once proposed regulations are released. Staying engaged with future announcements, IRS resources and sector commentary can help organizations understand how any new requirements would apply in their specific context.
Conclusion
The proposed Form 990 transparency initiative signals an increased federal focus on accountability and disclosure within the nonprofit sector. While the details remain uncertain, organizations should monitor future developments and be prepared for the possibility of expanded reporting related to government funding and fiscal sponsorship activities.
