Potential Form 990 Changes: What We Know and What Remains Unclear

Form 990 already requires nonprofits to disclose a substantial amount of information. Even so, the return does not always make it easy to follow a particular dollar from its source to its ultimate use.

That appears to be the concern behind a federal initiative announced in April 2026. According to the U.S. Treasury’s announcement, the IRS plans to revise Form 990 reporting for certain activities of organizations described under Section 501(c)(3). Particular attention is paid to government grants, government contracts, and fiscal sponsorship arrangements.

The announcement does not create a new filing requirement today. It does signal the questions future reporting may be expected to answer: Who provided the money? Who controlled it? And where did it go?

A Shift From Reporting Totals to Explaining Relationships

A nonprofit may receive federal, state, or local agency funds to operate a program or provide a service. Treasury said clearer reporting could help both the IRS and the public understand the sources and uses of government funding, support proper revenue classification, and reduce the risk of fraud, abuse, and misuse of taxpayer dollars.

BDO’s analysis of the Treasury initiative also indicates that more structured data could allow the IRS to use automated analysis to identify higher-risk filings more efficiently.

Why Fiscal Sponsorship Is Receiving Attention

Treasury’s concern is not that fiscal sponsorship is inherently improper. Rather, the department cited congressional concerns that some arrangements may make it difficult to identify who is operating a project, who controls the project’s funds, and how those funds are being used.

In many fiscal sponsorship structures, the sponsor must do more than simply pass funds to another group. The nature and degree of the sponsor’s oversight, discretion, and control depend on the structure of the arrangement. If future Form 990 reporting requires organizations to provide more information about individual projects and the movement of sponsored funds, informal or inconsistently documented practices may become considerably harder to explain.

According to BDO, potential revisions could require nonprofits to identify sponsored projects directly, disclose who controls the related funds, and explain how those funds are used.

Preparation Should Begin With the Records That Already Exist

It would be premature to redesign an accounting or reporting system around a form that has not yet been released. Nonprofits can, however, use the announcement to evaluate whether their existing records reflect the substance of their funding arrangements.

For organizations receiving government funding, the relevant question is whether the funding can be followed without reconstructing its history at year-end. The agreement, revenue classification, restrictions, program activity, and related expenses should form a consistent record.

For fiscal sponsors, the written agreement should be compared with actual practice. Because the relevant records and responsibilities often sit across departments, a useful internal review may involve finance, program leadership, grant administration, and executive management.

What the Announcement Tells Us—and What It Does Not

Treasury has been clear about the direction of the initiative, but the reporting requirements have not yet been finalized. The Treasury and the IRS have not released proposed regulations or draft language for Form 990. As a result, definitions, reporting thresholds, the location of the new disclosures, and the possibility of different requirements based on an organization’s size all remain open questions.

The effective date is also uncertain. While the Minnesota Society of CPAs identifies 2027 as the earliest tax year that could potentially be affected, it notes that implementation in a later year is considerably more likely.

Proposed regulations and a public-comment period are expected before the changes are finalized.

For many organizations, the eventual change may amount to additional detail on an already extensive return. For others, it may reveal that important arrangements are understood operationally but not documented clearly enough to withstand greater public scrutiny.

For now, the conclusion is limited but meaningful: the federal government wants greater visibility into certain nonprofit funding relationships, but Treasury and the IRS have not yet publicly specified exactly what information organizations will be required to report.

Ultimately, the issue will be less about how an organization labels the funding and more about whether it can clearly explain the relationship behind it.

Palm Beach Accounting and Financial Services will continue evaluating the proposed revisions as Treasury and the IRS release further guidance. Nonprofit leaders with significant government funding or fiscal sponsorship activity may benefit from reviewing these arrangements before expanded reporting makes existing documentation gaps more visible.