When Charitable Dollars Disappear from Public View: Congress Targets Fiscal Sponsorship Transparency
Aug 11, 2026
Fiscal sponsorships have become one of the least transparent areas of the nonprofit sector. While many serve legitimate charitable purposes, existing IRS and audit reporting rules often make it difficult for donors, watchdog organizations, journalists, and regulators to determine how charitable dollars ultimately flow through sponsored projects. A bill now advancing in Congress seeks to change that.
What Are Fiscal Sponsorships?
A fiscal sponsorship is an arrangement in which an existing tax-exempt charity accepts charitable contributions on behalf of a charitable project that does not have its own IRS-recognized 501(c)(3) public charity status. The fiscal sponsor receives the donations, exercises legal control over the funds, and is responsible for ensuring that they are used to further charitable purposes. In exchange, the sponsored project can begin operating and fundraising without first creating and obtaining recognition as a separate nonprofit organization. In short, in many common fiscal sponsorship arrangements, the sponsored project essentially functions as a program of the larger charity.
In this way fiscal sponsorships resemble Russian nesting dolls. From the outside, donors see what appears to be an independent charitable organization. Open that doll, however, and inside is the fiscal sponsor. Open that one, and you find the financial activities of numerous other sponsored projects all reported together. Eventually, the individual project the donor intended to support disappears into a much larger financial picture, making meaningful public accountability far more difficult.
Fiscal Sponsorships Can Mislead Donors
Fiscal sponsorships can easily mislead even sophisticated donors; not because anyone necessarily intends to deceive them, but because the legal structure is largely invisible to the public. Sponsored projects often have their own names, branding, websites, and fundraising campaigns, giving every appearance of being independent charities. Donors naturally assume those organizations have their own governing boards, file their own IRS tax Form 990, disclose executive compensation, and publicly report how charitable dollars are raised and spent. In reality, they often do none of these things.
Instead, those responsibilities fall to the fiscal sponsor, where the financial activities of numerous sponsored projects are often rolled together into a single IRS filing. For donors trying to follow the money, the trail frequently ends there. The public generally cannot see separate financial statements, executive compensation, fundraising results, or program spending for individual sponsored projects.
Why Fiscal Sponsorships Have Become a Transparency Problem
One fiscal sponsor may oversee dozens, or even hundreds, of sponsored projects. Some of those projects raise and spend more money each year than do many independent public charities. Yet donors often have no way of seeing how much money an individual project raised, how it spent those funds, who received compensation, or whether charitable dollars were used efficiently.
If that same project operated as its own public charity, it generally would be required to file its own IRS Form 990 every year. Donors could review its finances, executive compensation, governance, and many of its significant financial activities. Under a fiscal sponsorship arrangement, however, those disclosures often disappear from public view because the sponsored project files no tax Form 990 of its own.
The result is that a project can raise and spend millions of dollars while avoiding much of the public reporting required of every other large charity. Instead, its financial activities are buried within the fiscal sponsor’s much larger tax return, making it extremely difficult, if not impossible, for donors to follow the money and determine whether it was spent as promised and in furtherance of the charitable purposes for which it was raised.
Discouraging Abuse of Fiscal Sponsorship Arrangements
Public disclosure laws exist for a reason. They recognize that transparency is one of the public’s strongest safeguards against the misuse of charitable assets. When the law allows substantial charitable activity to take place with far less public disclosure than would otherwise be required, it creates an opportunity for those acting in bad faith to obscure the flow of charitable dollars, conceal compensation arrangements, or make it more difficult for donors, journalists, regulators, and watchdog organizations to understand how charitable funds are ultimately being used.
Public disclosure laws were never intended to reward organizations that choose a legal structure with fewer reporting requirements. Yet under the current system, a project can avoid much of the public disclosure expected of an independent charity simply by operating under a fiscal sponsorship arrangement. That creates an opportunity for those acting in bad faith to shield financial activities from public scrutiny in ways that would not be possible if the project operated as a stand-alone public charity. CharityWatch believes transparency laws should be written to discourage that result, not inadvertently encourage it. The Fiscal Sponsorship Transparency Act would help restore that balance by requiring greater public disclosure from fiscally sponsored projects.
What The Bill Proposes
The Fiscal Sponsorship Transparency Act of 2026 (H.R. 9721) would significantly increase the amount of information fiscal sponsors must publicly disclose about their sponsored projects. While the bill would not eliminate fiscal sponsorship as a charitable model, it would make it much easier for donors, journalists, regulators, and watchdog organizations to follow charitable dollars and understand how individual sponsored projects operate. The legislation was introduced on July 16, 2026, and has since been approved by the House Ways and Means Committee. As of this writing, it has not yet been enacted into law. Readers may review the full text of the bill here: Fiscal Sponsorship Transparency Act of 2026 (H.R. 9721).
| What Donors Can See Today | What H.R. 9721 Would Require |
|---|---|
| Sponsored projects are often difficult or impossible to identify from the fiscal sponsor’s IRS Form 990. | Public identification of sponsored projects receiving charitable funds. |
| The public often cannot determine how much charitable funding a specific project received. | Public reporting of how much charitable funding was made available to each sponsored project. |
| Little or no public information is available describing a project’s activities. | A description of each sponsored project’s charitable activities. |
| The public often cannot determine who is responsible for overseeing a sponsored project. | Identification of the individual responsible for managing each fiscal sponsorship arrangement. |
| The public generally cannot determine when a fiscal sponsorship arrangement began or ended. | Disclosure of when each fiscal sponsorship arrangement began and, if applicable, ended. |
Importantly, much of the information the legislation would require fiscal sponsors to disclose is information they already must maintain in order to administer sponsored projects, account for project funds, and exercise the legally required discretion and control over charitable assets. Rather than requiring fiscal sponsors to create an entirely new accounting infrastructure, the bill would largely require them to make more of the information they already maintain internally available to the public.
If enacted, the bill’s provisions generally would apply to taxable years beginning after December 31, 2027. Meaning, most fiscal sponsors would first be subject to the new requirements beginning with their 2028 tax year.
Bill Targets “Pass-Through” Fiscal Sponsorship Arrangements
The Fiscal Sponsorship Transparency Act would do more than increase public disclosure. It would also discourage nonprofits from serving merely as pass-through organizations for charitable donations.
Under longstanding IRS principles, a fiscal sponsor is required to exercise “discretion and control” over charitable funds. In other words, the sponsor cannot simply accept tax-deductible donations and automatically pass them along to another organization or project without exercising independent judgment over how those funds will be used.
H.R. 9721 would strengthen that principle by imposing tax consequences on organizations that operate as what the legislation describes as “improper conduit arrangements.” In general, the bill targets situations in which a tax-exempt organization merely receives charitable contributions on behalf of a specifically identified non-exempt organization or individual without exercising meaningful discretion and control over the donated funds.
For donors, this distinction is important. A fiscal sponsor is not intended to function as a charitable bank account or payment processor. Congress has long required tax-exempt organizations to ensure that charitable contributions are ultimately used to further charitable purposes. By discouraging organizations from acting as mere conduits, the legislation reinforces one of the fundamental principles underlying charitable tax deductions: that tax-exempt organizations must independently oversee how charitable assets are ultimately used.
Some nonprofit organizations have expressed concern that the bill’s new tax penalties could have unintended consequences for legitimate fiscal sponsors. They argue that fiscal sponsors already have a legal obligation to exercise discretion and control over charitable funds, but that the precise contours of that standard have evolved largely through IRS guidance rather than detailed statutory rules. Critics worry that imposing substantial excise taxes before the U.S. Department of the Treasury has fully clarified what constitutes sufficient “discretion and control” could create legal uncertainty, increase compliance costs, and discourage some organizations from offering fiscal sponsorship arrangements altogether. They also caution that sponsors may become more reluctant to incubate innovative or higher-risk charitable projects if the potential penalties for getting it wrong become too severe.
Those concerns deserve careful consideration. At the same time, Congress has long recognized that a tax-exempt organization should not function merely as a conduit for charitable donations. If a fiscal sponsor is unable or unwilling to exercise meaningful oversight over charitable funds, it is reasonable to ask whether donors should receive a charitable tax deduction for contributions made through that arrangement in the first place. The challenge for lawmakers is to deter abuse without discouraging legitimate fiscal sponsorships that faithfully exercise discretion and control over charitable assets.
Is This Political?
Although the Fiscal Sponsorship Transparency Act has attracted attention because of its potential impact on organizations involved in recent politically-charged controversies, the transparency issues it seeks to address extend far beyond any one ideology or cause. Fiscal sponsorships are used by organizations across the political spectrum, as well as by charities focused on education, the arts, the environment, disaster relief, public health, religion, and countless other missions. Regardless of whether a donor supports conservative, liberal, progressive, or nonpartisan organizations, the underlying principle is the same: donors deserve to know how charitable dollars are raised, spent, and overseen.
Does the Bill Go Far Enough?
The Fiscal Sponsorship Transparency Act would represent a significant improvement over the current reporting framework. However, it also raises an important question: Does it go far enough?
Fiscal sponsorship is often used to help incubate new charitable projects that are too small or too new to justify creating their own tax-exempt organizations. In those circumstances, it may make sense to exempt very small sponsored projects from some of the reporting requirements imposed on independent public charities. Congress could, for example, establish a safe harbor based on a project’s size, age, or both.
The question becomes more difficult when a sponsored project grows into a mature organization. If a project has operated for several years, raises and spends millions of dollars annually, employs staff, pays executives, solicits donations directly from the public, and otherwise functions much like an independent public charity, why should donors receive substantially less information simply because the organization continues to operate under another charity’s tax exemption?
At some point, the legal form begins to diverge from the practical reality. Large, mature sponsored projects can resemble independent charities in nearly every meaningful respect, yet they are not required to publicly disclose much of the information Congress has long required every other public charity to report. That includes detailed financial information, executive compensation, governance disclosures, related-party transactions, and many other accountability measures designed to help the public evaluate how charitable assets are being managed.
The Fiscal Sponsorship Transparency Act would narrow that transparency gap, but it would not eliminate it. As Congress considers the legislation, lawmakers may also wish to consider whether mature, large-scale sponsored projects should eventually be subject to substantially the same public reporting requirements as similarly sized independent public charities. From a donor’s perspective, transparency should depend less on an organization’s legal structure than on the amount of charitable resources entrusted to it.
Will You Help CharityWatch Continue Our Important Work?
As the only independent charity watchdog organization in the United States, CharityWatch relies on your support to fund our in-depth research and analysis in order to bring you the unbiased charity ratings and other information you rely on to help you make more informed giving decisions. We are not directly or indirectly funded by nonprofit industry interests.
We hope you will consider making a donation today so that we can continue to speak openly and critically and call out wrongdoing when we see it without concern for special interests cutting our funding. CharityWatch is a small organization and your donations are noticed, needed, and greatly appreciated. Thank you for giving wisely!