Fiscal sponsorship for nonprofits is no longer the quiet back-office arrangement it was a year ago. On April 23, 2026, the U.S. Department of the Treasury announced that the IRS will redesign Form 990 specifically to expose how money flows through fiscal sponsorships, naming them as a transparency gap that the agency intends to close. Two weeks earlier, the SPONSOR Act (S. 3942) landed in the Senate proposing criminal and civil liability for sponsors over activities of the projects they host. Whether you sponsor projects, run a sponsored project, or fund either, the agreement you signed before this spring is now operating in a different legal climate than the one it was drafted for.

What Treasury Actually Said on April 23

The Treasury press release was unusually specific. It named fiscal sponsorship by name, alongside government grants and contracts, as a target for revised Form 990 reporting. Acting IRS Chief Counsel Ken Kies put it plainly: “If an organization receives public funds or tax-deductible donations, it should be prepared to show who controls the money and where it goes.” Secretary Bessent framed the initiative around preventing “fraud, abuse, and extremist activity” and tied the redesign to public accountability for any organization holding tax-exempt status. The Covington & Burling analysis notes the press release specifically mentioned 501(c)(3) organizations, but the changes will affect every tax-exempt entity that files a 990.

Three operational signals matter for sponsored projects and the sponsors hosting them. First, the current Form 990 has no field that itemizes sponsored projects — financial statements may mention them, but the return does not. That is what Treasury called a “black hole” and what the redesign is intended to close. Second, the press release said the agency wants to see who exercises actual control over funds, which means generic boilerplate about governance will not survive contact with the new disclosures. Third, the announcement preceded proposed regulations and a public comment period. The last major Form 990 redesign in 2008 had a 90-day comment period and a three-year phase-in. Expect a similar runway here — but the renegotiation work is best done before the proposed rules drop, while you still have leverage and time.

Why Model A and Model C Are Suddenly Not the Same Trade

Most one-page explainers treat fiscal sponsorship as a single thing. It is not. Gene Takagi’s deep examination of Model C argues that the term should arguably be limited to Model A arrangements, because the two structures are fundamentally different and conflating them is what gets sponsors and projects in trouble. Under Model A, the sponsored project is operated inside the sponsor — its employees, assets, liabilities, and revenues are the sponsor’s. Under Model C, the sponsor is an intermediary grantmaker that regrants funds to a separate, non-exempt entity, retaining discretion and control through a written grant agreement.

The legal difference matters because the Form 990 disclosure that Treasury is signaling reads very differently for each model. A Model A sponsor genuinely owns the project; the new reporting will likely ask for the same kinds of operational disclosures that any program activity would generate. A Model C sponsor is a grantor; the new reporting will likely ask whether the regrant met expenditure responsibility, whether the subgrantee had separate governance, and whether the sponsor retained the discretion the Internal Revenue Code requires. If your sponsorship agreement does not specify which model governs the relationship — or worse, mixes their language — you have a disclosure problem the day the new return goes live. Nonprofit funding strategies built around a vague sponsorship are exactly the kind of arrangement that will look murky on the redesigned return.

Five Sponsorship Terms You Should Renegotiate Right Now

The Treasury announcement and the SPONSOR Act both point at the same underlying concern: who is in charge of the money, and can anyone tell from the outside. Five contract clauses sit at the center of that question, and they are the right places to spend renegotiation time during the comment period.

Fund-control and discretion language

Vague phrases like “the sponsor will hold and administer funds for the project” no longer carry the day. Replace them with explicit language that names the sponsor as the legal owner of contributions, grants the sponsor the right to refuse or redirect any expenditure that falls outside the sponsor’s exempt purpose, and requires the project’s program leads to seek approval for spending above a stated dollar threshold. Both Model A and Model C agreements need this — Model A because the law treats the funds as the sponsor’s, Model C because regulatory discretion is the doctrinal hook that makes the regrant deductible.

Project-level financial reporting

If Form 990 will eventually require project-by-project revenue and expense disclosure, build that data flow before the return demands it. Specify in the agreement that the project will submit monthly or quarterly financials in a format the sponsor can roll up — chart of accounts, restricted vs. unrestricted classification, in-kind contributions tracked separately. A Thomson Reuters tax practitioner told colleagues that organizations already tracking this information for internal purposes will be best positioned to adapt; the ones who have to build the tracking from scratch will pay the highest compliance tab.

Termination and spin-off rights

Most sponsorship agreements have a termination clause, but few address what happens when a project gets its own 501(c)(3) determination letter and wants to move. The new scrutiny makes a clean spin-off pathway more valuable, not less. Specify the notice period, the valuation method for transferred assets, the treatment of restricted grants in progress, and any tail obligations the sponsor retains. For funders evaluating sponsored projects in funder due diligence workflows, a project that can produce its own spin-off pathway looks materially less risky.

How the SPONSOR Act Could Change What “Sponsored” Even Means

S. 3942 — the Stop Proxy Organizations Nurturing Subversive Operations and Riots Act — is a separate train running on a parallel track. The Charity Lawyer Blog analysis by Ellis Carter walks through the bill’s mechanics: a new subsection in Code section 501 that would make a 501(c)(3) sponsor bear criminal liability related to or arising from a fiscal sponsorship, and civil liability for certain “covered activities” tied to the sponsorship. The bill does not limit liability to situations where the sponsor authorized or knew about the activity. It creates a sweeping rule and then presumes the sponsor is responsible for ensuring funds are used in compliance with applicable laws.

If the bill advances, it changes the practical economics of sponsorship. Even sponsors with strong intake, screening, and oversight practices would face the cost of investigation and defense whenever a sponsored project drew enforcement attention. That cost would push sponsors to be more selective about advocacy-heavy or rapid-response projects, which is the field’s existing capacity backbone for grassroots organizing. The Chronicle of Philanthropy argued the regulatory and legislative pressure together could shrink the infrastructure that helps small nonprofits clear early-stage compliance work. A renegotiated agreement that documents diligence, screening criteria, and reserved sponsor rights is the contractual record that a sponsor will want if it ever has to demonstrate that it exercised appropriate oversight.

What Sponsored Projects Should Do Before the Comment Period Opens

Sponsored projects often see this announcement as the sponsor’s problem. It is not. Foundations and government funders read 990s, and they will read the new disclosures with the same attention they currently give to indirect cost rates and audited financials. Three actions tighten a sponsored project’s position regardless of where the rules land.

First, pull the current sponsorship agreement and read it as if you were the sponsor’s tax counsel. If the agreement does not clearly specify model, fund-control rights, reporting cadence, indemnification, or termination terms, those are the topics for renegotiation. Second, build your own project-level books even if the sponsor only requires summary reporting today. The internal records exist regardless of what the return asks for, and they are the same records you will need when you spin off, apply for an audit, or face a funder due diligence request. Third, treat the comment period as a participation opportunity. The 2008 redesign’s final shape was meaningfully influenced by stakeholder comments; the field that shows up with specific objections and proposed alternatives is the field that gets a usable final rule. Tools like the OpenGrants grant database can help projects identify funders likely to weigh in on the comment record alongside the sector’s legal organizations.

Frequently Asked Questions

Does the Treasury announcement change Form 990 reporting for this filing year?

No. As of late May 2026 there are no immediate filing changes. Treasury has signaled that proposed regulations will be released and will go through a public notice-and-comment period before any new reporting takes effect. The 2008 Form 990 redesign took three years to phase in fully. Plan for a multi-year runway, but use the runway to renegotiate sponsorship agreements and build the internal data flows the new return is likely to require.

Will sponsored projects have to file their own Form 990 under the new rules?

The announcement does not say so directly. Under current rules, sponsored projects do not file their own 990 — the sponsor files and includes project activity inside its overall return. The proposed approach appears to be project-level disclosure inside the sponsor’s 990, not separate returns. That likely means the sponsor still files, but with detailed schedules naming sponsored projects, the operators, financial flows, and governance relationships.

Should we switch from Model A to Model C, or vice versa, to reduce exposure?

Probably not as a reflex. Each model carries its own legal logic, and the right structure depends on whether the project will be operated by sponsor staff or by a separate entity, how funds are raised, and how the sponsor wants to manage liability. A switch made to dodge disclosure is exactly the kind of move the new reporting is designed to surface. The better move is to make sure the model you have is documented correctly and the agreement reflects it.

How will foundations react to the new disclosures?

Expect more diligence on sponsored relationships, particularly from foundations that already require expenditure responsibility on regrants. Funders will read the new schedules the same way they read audited financials and IRS determination letters today. A sponsored project that can hand its program officer a clean sponsorship agreement and project-level financial reports will move faster through diligence than one that cannot.

Does any of this affect contributions already received under existing sponsorships?

Contributions deductible at the time of donation remain deductible. What changes is the reporting on how those funds were spent and whether the sponsor maintained the control the doctrine requires. The risk is forward-looking — disclosure quality on future returns and on grant applications that ask for sponsorship terms — not retroactive recharacterization of past gifts.

Bottom Line

The April 23 Treasury announcement and the SPONSOR Act push the same lever from different ends: making the inside of a fiscal sponsorship visible from the outside. Sponsors and sponsored projects who used to operate on handshake norms and short agreements are about to have their relationships read on the public record. The right response is not to abandon fiscal sponsorship — the structure remains essential for early-stage nonprofits, time-limited initiatives, and field-building work that does not justify a standalone 501(c)(3). The right response is to spend the comment-period runway renegotiating the agreement clauses Treasury is signaling will be reportable, building project-level financial records that match the disclosure shape, and documenting the diligence that protects both parties if the SPONSOR Act-style liability regime ever becomes law.

If your organization sponsors projects or operates under a sponsor, this is the spring to do the work that will keep the relationship defensible through the new reporting era. For nonprofits exploring the right funding structure for the next phase of growth, the OpenGrants managed grant writing team can help model whether continued sponsorship, a spin-off, or a hybrid pathway best fits your operating plan and funder pipeline.