Fiscal Sponsorship Transparency Act of 2026
- Sponsor
- Sen. Cotton, Tom [R-AR]
- Committees
- Finance Committee (primary)
- Last action
- Jul 22, 2026
Bottom line
The bill seeks to enhance transparency and accountability in charitable fiscal sponsorship by imposing new reporting obligations and penalties for arrangements where organizations fail to exercise sufficient discretion and control over funds.
What it actually does
This bill amends the Internal Revenue Code of 1986 to mandate new reporting requirements for charitable organizations engaged in fiscal sponsorship arrangements. It also disallows tax deductions for contributions made under "improper conduit arrangements" and establishes new excise taxes on organizations and their managers for knowingly participating in such arrangements, aiming to increase transparency and accountability in the charitable sector.
Proponents argue
Proponents argue that the bill will prevent the misuse of charitable status by ensuring that tax-exempt organizations maintain proper oversight of funds received under fiscal sponsorship, thereby safeguarding donor intent and public trust in the charitable sector. They contend it closes loopholes that allow non-exempt entities to benefit from tax-deductible contributions without adequate scrutiny.
Opponents contend
Opponents might argue that the new reporting requirements and potential excise taxes could create an undue administrative burden on legitimate charitable organizations, particularly smaller ones, potentially stifling innovative philanthropic models or making it harder for emerging groups to access funding. They may also contend that the definitions of "improper conduit arrangement" and "discretion and control" could be overly broad or lead to unintended consequences.
The bill is relatively short, but its technical nature and reliance on IRS code amendments mean a careful reading is required to grasp its full implications for charitable organizations and donors.
Section 2(a)(1), amending IRC Section 6033(b)
Enhanced Reporting for Fiscal Sponsorships
This provision requires charitable organizations to report detailed information about each fiscal sponsorship arrangement on their annual tax returns (Form 990). This includes the name of the sponsored party, aggregate amounts made available or transferred, a description of related activities, the name of the principal officer managing the arrangement, and its start and end dates.
Supporters argue
Supporters argue this will bring much-needed transparency to fiscal sponsorship, allowing the IRS and the public to better understand how funds are being channeled and used, thereby preventing misuse of tax-exempt status.
Critics contend
Critics may argue that these detailed reporting requirements could be overly burdensome, especially for smaller charitable organizations that lack extensive administrative staff, potentially discouraging them from engaging in fiscal sponsorship which can be a vital tool for new or grassroots initiatives.
Tradeoffs
Balances the need for transparency and accountability in the charitable sector against the administrative burden placed on organizations and the potential chilling effect on fiscal sponsorship as a tool for emergent projects.
Section 2(a)(2), inserting new IRC Section 6033(p)
Defining Fiscal Sponsorship Arrangement
This section formally defines "fiscal sponsorship arrangement" for reporting purposes. It covers two main types: arrangements where an organization receives and administers amounts for another non-exempt person, and arrangements where an organization publicly solicits funds for a specific project to further its exempt purpose, making those funds available for the project while retaining discretion and control. It also clarifies that certain disregarded entities owned by the organization are treated as separate, non-exempt entities for this definition.
Section 2(b), amending IRC Section 170(c)
Disallowing Deductions for Improper Conduit Contributions
This provision amends the definition of "charitable contribution" to exclude any contribution or gift made under an "improper conduit arrangement." This means donors will not be able to claim a tax deduction for donations made through an organization that acts merely as a pass-through for funds to a specifically identified non-exempt person, without exercising proper discretion and control.
Section 2(c), adding new IRC Section 4960A
Excise Taxes on Improper Conduit Arrangements
This section imposes a two-tiered excise tax on "specified tax-exempt organizations" and their managers for knowingly participating in "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) on managers who knowingly agreed to the transfer. If the arrangement is not corrected, additional taxes of 100% on the organization and 50% (up to $20,000) on refusing managers are imposed.
Section 2(c), adding new IRC Section 4960A(d)(2)
Defining Improper Conduit Arrangements
This provision 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 organization fails to exercise discretion and control over the use of the funds. This definition is crucial as it triggers both the denial of donor deductions and the imposition of excise taxes.
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 treated as a separate, non-exempt entity.
Section 2(a)(2), new IRC Section 6033(p)(2)
Why it matters:Standard legislative practice to ensure comprehensive application of definitions, preventing avoidance through entity structuring.
Case for: Supporters would argue this prevents organizations from using disregarded entities to circumvent the fiscal sponsorship reporting requirements, ensuring transparency applies regardless of internal corporate structure.
Case against: Critics might argue it adds a layer of complexity for organizations that use such structures for legitimate operational reasons, requiring them to re-evaluate internal arrangements.
Estimated impact: Ensures broader applicability of reporting requirements, impacting organizations with complex internal structures.
Mandates the Secretary of the Treasury to prescribe regulations to clarify arrangements to which new Section 6033(p)(1) applies and what constitutes "discretion and control" for both reporting (6033(p)(1)(C)) and improper conduit (4960A(d)(2)(B)) purposes.
Section 2(d)
Why it matters:Standard practice for complex tax legislation to delegate detailed rule-making to the Treasury, but the definition of "discretion and control" is central to the bill's enforcement.
Case for: Supporters would argue this ensures flexibility and expertise in developing practical guidance for a complex area, allowing for adaptation to various fiscal sponsorship models.
Case against: Critics might express concern that broad regulatory authority could lead to interpretations that are either too restrictive or too lenient, potentially creating uncertainty until regulations are finalized.
Estimated impact: The ultimate impact of the bill hinges significantly on these future regulations, as "discretion and control" is the lynchpin for both reporting and penalties.