Fiscal Sponsorship Transparency Act of 2026
- Sponsor
- Rep. Smucker, Lloyd [R-PA-11]
- Committees
- Ways and Means Committee (primary)
- Last action
- Jul 22, 2026
Bottom line
The bill aims to enhance transparency and accountability in fiscal sponsorship by requiring detailed reporting and imposing penalties on arrangements where the sponsoring charity acts as a mere pass-through without proper oversight.
What it actually does
This bill amends the Internal Revenue Code of 1986 to require certain charitable organizations to report detailed information about their fiscal sponsorship arrangements to the IRS. It also disallows charitable deductions for contributions made under "improper conduit arrangements" and imposes new excise taxes on organizations and their managers involved in such arrangements, where the sponsoring organization fails to exercise discretion and control over the funds.
Proponents argue
Proponents argue that the bill closes loopholes that allow non-exempt entities to benefit from tax-exempt status without proper oversight, preventing abuse of charitable giving, ensuring donor intent is honored, and increasing public trust in the charitable sector. They contend it clarifies responsibilities for fiscal sponsors and strengthens the integrity of tax-exempt organizations.
Opponents contend
Opponents might argue that the new reporting requirements and potential excise taxes could create an undue administrative burden for legitimate fiscal sponsors, especially smaller organizations, potentially stifling innovative charitable projects that rely on fiscal sponsorship. They may also contend that the definitions of "improper conduit arrangement" and "discretion and control" could be overly broad or vague, leading to unintended penalties for good-faith actors.
The bill text is concise enough for a diligent reader to review, but understanding its full implications requires familiarity with tax-exempt organization law.
Section 2(a)(1) amending IRC Section 6033(b)
Enhanced Reporting for Fiscal Sponsorship Arrangements
This provision mandates that charitable organizations engaging in fiscal sponsorship arrangements must annually report specific details to the IRS. These details include the names of non-individual parties, aggregate amounts made available or transferred, a description of related activities, the principal officer managing the arrangement, and the arrangement's start and end dates.
Supporters argue
Supporters argue this increases transparency, allowing the IRS and the public to better understand the scope and nature of fiscal sponsorship activities, thereby reducing potential for abuse and ensuring accountability within the charitable sector.
Critics contend
Critics might contend that these detailed reporting requirements are overly burdensome, especially for smaller organizations with limited administrative capacity, potentially discouraging legitimate fiscal sponsorship and hindering emerging charitable initiatives.
Tradeoffs
This provision balances the need for greater transparency and oversight in fiscal sponsorship against the potential for increased administrative and compliance burdens on charitable organizations.
Section 2(a)(2) inserting new IRC Section 6033(p)
Statutory Definition of 'Fiscal Sponsorship Arrangement'
This section defines 'fiscal sponsorship arrangement' for reporting purposes, covering two main types: arrangements where an organization receives and administers funds for a non-exempt person for consideration, or where it publicly solicits funds for a specific project, administers them, and retains discretion and control. It also clarifies that certain disregarded entities owned by the organization are treated as separate, non-exempt entities for this definition, and explicitly excludes private foundations and donor-advised funds from being 'applicable organizations' subject to these rules.
Section 2(b) amending IRC Section 170(c)
Disallowing Deductions for Improper Conduit Contributions
This provision amends the Internal Revenue Code to explicitly state that contributions or gifts made under an 'improper conduit arrangement' (as defined elsewhere in the bill) are not considered 'charitable contributions.' This means donors cannot claim a tax deduction for such contributions, effectively removing the tax incentive for using these arrangements.
Section 2(c)(1) inserting new IRC Section 4960A
Excise Taxes on Improper Conduit Arrangements
This section establishes new excise taxes on 'specified tax-exempt organizations' and their managers for transfers made under 'improper conduit arrangements.' An initial tax of 20% is imposed on the organization for the amount transferred, and a 5% tax (up to $10,000) is imposed on organization managers who knowingly agree to such transfers. If the improper transfer is not corrected within a specified period, additional taxes of 100% on the organization and 50% (up to $20,000) on managers who refuse correction are imposed.
Section 2(c)(1), new IRC Section 4960A(d)(2)
Definition of 'Improper Conduit Arrangement'
This defines an 'improper conduit arrangement' as an arrangement where contributions are solicited or received to be transferred to a specifically identified non-exempt person, and the tax-exempt organization fails to exercise discretion and control over the use of the funds. This definition is critical because it determines when both the charitable deduction disallowance for donors and the new excise taxes on organizations and managers will apply.
For the purpose of defining a 'fiscal sponsorship arrangement,' any entity owned by the organization that would normally be disregarded as separate from its owner (e.g., a single-member LLC) is instead treated as a separate entity that is not exempt from tax under section 501(a).
Section 2(a)(2), new IRC Section 6033(p)(2)
Why it matters:This is standard legislative practice to include technical anti-avoidance provisions within definitions to ensure comprehensive application of the law and prevent circumvention through specific organizational structures.
Case for: Supporters would argue this prevents organizations from using disregarded entities to circumvent the fiscal sponsorship reporting requirements, ensuring that the spirit of the law is upheld regardless of the specific legal structure used.
Case against: No specific opposition is typically raised against this type of technical anti-avoidance provision, as it aims to close a potential loophole rather than impose new broad restrictions.
Estimated impact: This provision prevents potential tax avoidance strategies by ensuring that fiscal sponsorship arrangements involving commonly used disregarded entities are subject to the new transparency and reporting rules.
This subsection explicitly states that private foundations (as defined in section 509(a)) and donor advised funds (as defined in section 4966(d)(2)) are *not* considered 'applicable organizations' for the purpose of the new fiscal sponsorship reporting requirements.
Section 2(a)(2), new IRC Section 6033(p)(3)
Why it matters:It is standard legislative practice to define the scope of applicability and list exclusions within the relevant definitional section to clearly delineate which entities are subject to the new provisions.
Case for: Proponents would argue that private foundations and donor-advised funds are already subject to extensive and distinct regulatory frameworks, making additional fiscal sponsorship reporting redundant or inappropriate for their specific operational models, which are already heavily scrutinized.
Case against: Critics might argue that excluding these entities creates a potential loophole, allowing them to engage in activities similar to fiscal sponsorship without the same level of transparency, especially if they operate in ways that mimic the arrangements the bill seeks to regulate.
Estimated impact: This provision narrows the scope of organizations subject to the new reporting rules, potentially reducing administrative burden on these specific types of charitable entities, but also potentially creating a carve-out for activities that might otherwise fall under the bill's intent.
This section directs the Secretary of the Treasury to prescribe such regulations as may be necessary or appropriate to clarify what constitutes a 'fiscal sponsorship arrangement' (under IRC 6033(p)(1)) and, crucially, what constitutes 'discretion and control' for both the reporting requirements and the new excise tax provisions (under IRC 6033(p)(1)(C)(i) and 4960A(d)(2)(B)).
Section 2(d)
Why it matters:This is standard legislative practice to grant regulatory authority to the executive branch for implementing complex new statutory provisions, acknowledging that detailed operational guidance is best developed through the rulemaking process.
Case for: Supporters argue that regulatory guidance is essential for the effective implementation of complex tax law, providing necessary clarity and flexibility to adapt to evolving practices in the charitable sector and ensuring consistent application of the law.
Case against: Critics might express concern that broad regulatory authority could lead to interpretations that deviate from congressional intent or impose unforeseen burdens, especially if the regulations are not developed with sufficient public input or are overly prescriptive.
Estimated impact: The ultimate effectiveness and practical impact of the bill, particularly how 'improper conduit arrangements' are identified and penalized, will heavily depend on the details provided in these forthcoming regulations.