Treasury To Require More Reporting And Paperwork From Tax-Exempts

The Treasury Department and the IRS have announced plans to revise Form 990, the primary disclosure form for tax-exempt organizations. The stated goal of the revisions is to “improve transparency, strengthen tax administration, and provide clearer reporting on certain activities of tax-exempt organizations.” That’s in keeping with the idea that when organizations receive public funds or tax-deductible contributions, the expectation is that they can clearly show—at least to the IRS—where the money comes from, who controls it, and how it is used. (Schedule B of the current 990, which discloses donors names and addresses to the IRS, is generally redacted before it’s made public.)

What exactly will change is not yet clear. Treasury was skimpy on specifics—this is still in the early stage. The IRS says it will issue proposed regulations and solicit public comments before finalizing any changes.

About Form 990

Form 990 is an annual information return that most tax-exempt organizations must file with the IRS for both compliance and public disclosure. For calendar-year organizations, the filing due date is May 15 of the year following the tax year (similar to the April 15 deadline for individuals).

The form generally requires reporting on an organization’s mission, governance, compensation practices, and detailed financial information, including revenue, expenses, and program activities. The specific filing requirements largely depend on an organization’s size and type.

Form 990 is required for larger tax-exempt organizations—generally those with gross receipts of $200,000 or more, or total assets of $500,000 or more. In addition to information about receipts and expenses, the form includes reporting on governance (such as key policies, including conflict-of-interest and whistleblower protections) and how executive compensation is set and paid. Form 990 also requires supplemental schedules, depending on the type of organization. For example, organizations report significant contributors on Schedule B and grants to others on Schedule I. Additional schedules focus on areas such as foreign activities (Schedule F), fundraising (Schedule G), insider transactions (Schedule L), and related entities (Schedule R), while Schedule O provides narrative explanations across the form. Even without those schedules, the form is quite detailed—it’s 12 pages long (compare that to your schedule-less 1040, which is just two pages long).

Form 990-EZ is a simplified, shorter version intended for mid-sized organizations—those with gross receipts under $200,000 and total assets under $500,000. It still requires basic financial information and some operational disclosures, but with less detail. Fewer schedules are required, and the governance and narrative sections are more limited than on the full Form 990.

Smaller organizations with gross receipts of $50,000 or less typically file Form 990-N (e-Postcard). Form 990-N is much easier to complete—you only need a few basic items of information about your organization, including the address, taxpayer identification number, and the name and address of a principal officer.

Private foundations file Form 990-PF, which is a bit different than the other forms in the series. Unlike Form 990, Form 990-PF combines information reporting with tax calculation. Unlike public charities, private foundations must report not only their activities and finances but also compute and pay certain taxes, including the net investment income tax (1.39% of net investment income for tax years beginning after December 20, 2019).

What Is Treasury Looking For?

The forms are pretty comprehensive already. So, what are the new rules intended to do? The changes are being framed as an accountability measure, with Treasury noting they “are intended to detect misconduct and hold wrongdoers accountable.”

Notably, Treasury singled out fiscal sponsorship as under increased scrutiny. Fiscal sponsorship is an arrangement in which a recognized tax-exempt organization agrees to support a project or initiative that does not have its own IRS-recognized tax-exempt status. The sponsor essentially provides a legal and administrative “home” so the project can operate under the sponsor’s exemption and, importantly, receive tax-deductible contributions. One popular example is Fractured Atlas, which supports independent artists and arts projects that would otherwise need their own nonprofit status. Another example is the International Documentary Association (IDA), which fiscally sponsors hundreds of documentary film projects.

While fiscal sponsorship has long been used by tax exempts, the IRS and Congress have expressed concern that it can hide who actually controls a project and its funds. The proposed changes aim to make those relationships more transparent.

Additionally, the Treasury has signaled that government funding will be treated as warranting closer tracking. The idea is that public funds, in particular, require clear reporting to ensure proper classification and accountability. This has drawn more scrutiny in recent years as the federal government has identified alleged government benefits fraud in states like California, Minnesota, and Mississippi.

Former IRS Criminal Investigation Chief Guy Ficco highlighted benefits fraud cases as a recent target for the agency, noting that CI has been conducting those investigations for years, resulting in over 80 indictments. He believes that similar benefit fraud is being committed across the country, although maybe not on the same scale, telling Forbes, “Whether those end up being tax crimes or they end up being another type of money laundering or wire fraud or conspiracy, that I don’t know, but I think that that’s an area that we’re certainly going to put some heavy focus on.”

What the Changes May Look Like in Practice

Although no draft Form 990 has been released yet, it’s easy to imagine what some of these changes might look like. One likely outcome are new schedules dedicated to fiscal sponsorship and government funding.

A new fiscal sponsorship schedule might require more structured, project-level reporting. Organizations may need to list sponsored projects, disclose how much funding is held for each, and explain whether those funds are segregated or commingled. There could also be requirements to identify who exercises control over those funds and how decisions are made.

A new schedule for government funding might require organizations to break down revenue in greater detail, distinguishing among federal, state, and local sources, as well as grants and contracts. It may also require disclosure of whether funds are restricted and which agencies provided them.

Changes to the basic Form 990 are also likely. Part VIII, which covers revenue, may be revised to more clearly distinguish government grants from contract income and to improve overall classification. And governance disclosures in Part VI may also expand—the IRS could add questions about oversight of government-funded programs and fiscal sponsorship arrangements, including whether written agreements exist and who has authority over spending decisions.

In addition, Schedule O—the narrative section—may likely carry more weight. Organizations may be asked to describe their fiscal sponsorship structures, internal controls over funds, and safeguards against misuse. This would shift the form more toward detailed explanations rather than simple check-the-box reporting.

To manage the additional regulatory burden, the IRS may introduce thresholds so that only organizations with funding above certain levels (such as $50,000) would be required to provide the most detailed disclosures.

Pros and Cons for the Changes

There is a reasonable argument that can be made for these changes. Form 990 is already intended to be a public transparency tool, and more detailed reporting could improve oversight. Clearer distinctions between revenue types and greater visibility into fiscal sponsorship arrangements could help regulators, watchdog groups, and the public better understand how funds are used.

At the same time, there are several areas where practitioners like me are likely to raise concerns. One is the administrative burden. Form 990 is already complex, and additional reporting requirements could be difficult for smaller organizations to meet. Even with thresholds in place, compliance costs may still increase for tax-exempts.

Another concern is the potential chilling effect on fiscal sponsorship. If reporting becomes too detailed or uncertain, sponsoring organizations may become more cautious, which could limit opportunities for smaller or emerging projects that rely on these arrangements.

And, most notably, the tone and timing of the announcement have drawn attention. References to “extremist activity” and to the misuse of charitable structures introduce a political aspect that seems to go beyond mere tax administration.

The move comes days after the Southern Poverty Law Center (SPLC), a nonprofit known for civil rights litigation and racial justice, was indicted by a federal grand jury for allegedly funneling money to members of violent extremist groups like the Ku Klux Klan and the National Socialist Party of America (American Nazi Party) by secretly paying confidential informants. Some have suggested that the lawsuit was a response to the SPLC’s criticisms of conservative organizations like Moms For Liberty and Turning Point USA. Last year, FBI Director Kash Patel announced on X (formerly Twitter) that the SPLC “long ago abandoned civil rights work and turned into a partisan smear machine,” declaring that their “disgraceful record makes them unfit for any FBI partnership.”

The SPLC, which promised to defend the case against what it calls “false allegations,” has admitted to using informants in the past to gather information on extremist groups, and says that it often shared that information with local and federal law enforcement.

What’s Next For Taxpayers

The underlying goal of increased transparency for tax-exempt organizations will likely be welcomed by many taxpayers. The challenge for the IRS, then, will be drafting reporting requirements that provide oversight without creating an excessive burden or uncertainty for tax-exempt organizations, many of which are already financially strained.

What that could look like depends on how the proposed rules are drafted and how the public comment process shapes the outcome. Treasury did not offer a timeline with its announcement, but in most cases, the process takes several months to over a year. After proposed regulations are published, the public comment period typically runs 30 to 90 days, sometimes followed by a public hearing. Final regulations may not be issued for many months, depending on the volume of comments and the complexity of the issues.