The Treasury Department said Thursday the Internal Revenue Service will be revising the Form 990 used by tax-exempt organizations such as charities in an effort to uncover fraud and hidden sources of funding.
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The goal is to provide clearer reporting on the activities of tax-exempt organizations that operate under Section 501(c)(3) of the Tax Code, including government contracts, government grants and fiscal sponsorship arrangements, to detect misconduct. The Treasury said in a news release that clearer reporting would help the IRS and the public better understand the sources and uses of funding from government contracts and grants to support proper revenue classification, and reduce the risk of fraud, abuse and misuse of taxpayer dollars.
“Public money and tax-exempt status demand public accountability,” said Treasury Secretary Scott Bessent in a statement. “We are ending the days of hiding fraud, abuse and extremist activity behind complicated nonprofit arrangements. When bad actors misuse charitable structures, directors and officers should understand that transparency can lead to scrutiny, accountability and liability under the law.”
The Treasury seems to be especially interested in fiscal sponsorship arrangements in which a tax-exempt organization supports charitable projects and initiatives. It said recent congressional oversight has “raised concerns that some fiscal sponsorship arrangements may be used to obscure who is operating a project, who controls project funds, and how those funds are being used.” It contends that increased reporting will help address those concerns and make it more difficult for “rogue organizations to hide behind opaque arrangements.”
The Treasury and the IRS expect to publish proposed regulations and provide an opportunity for public comment before any reporting changes are finalized. The Treasury and the IRS said they will consider “administrative feasibility, proportionality and reporting burden” as they develop the proposal.
“Tax-exempt status is not immunity from scrutiny,” said Treasury assistant secretary and acting IRS chief counsel Ken Kies in a statement. “If an organization receives public funds or tax-deductible donations, it should be prepared to show who controls the money and where it goes.”
The announcement comes less than a week after the IRS issued a first-time “
- False statements or misrepresentations in grant applications;
- Misuse of federal funds and grants including the diversion of funds for personal use;
- Self-dealing or undisclosed conflicts of interest;
- Improper payments to insiders, officers or related parties;
- Failure to perform required services or deliver promised outcomes;
- Falsified reporting to federal agencies;
- Misclassification of activities to maintain tax-exempt status;
- Any other tax-exempt organization misconduct such as tax fraud, money laundering or operating for non-exempt purposes; and,
- Other criminal or suspicious behavior.
Taken together, the efforts seem to indicate a desire by the Trump administration to crack down on charities and tax-exempt organizations that may be using federal funding in ways that don’t align with the administration’s policies. During a congressional hearing last week, IRS CEO Frank Bisignano was asked by Sen. Raphael Warnock, D-Georgia, about President Trump’s threats to revoke the tax-exempt status of Harvard and other universities and a
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