The IRS Is Coming for Groups That Incubate New Charities
A quiet Treasury proposal threatens the infrastructure that helps thousands of fledgling nonprofits get off the ground. Philanthropy should unite in opposition.
By Ema Sol
Ema Sol is co-founder of Future Incubator, a fiscal sponsor that works with organizations led by young people. She is a Public Voices Fellow on Youth Well-Being and Power with The OpEd Project and Hopelab.
May 26, 2026
As nonprofits struggle with a host of federal attacks, including canceled government funds and calls to treat some organizations like domestic terrorist groups, the Department of the Treasury launched a new and more subtle attack last month on organizations that help incubate fledgling charities.
The agency announced that it plans to redesign Form 990, the primary tool for the IRS to monitor tax-exempt organizations. The announcement said the move would stop “rogue organizations” from hiding their sources of funding behind “opaque arrangements.” Specifically, the department took aim at fiscal sponsors – organizations that provide management services and financial oversight for thousands of ventures that don’t have formal charity status.
In so doing, it joined with members of Congress who have recently been raising questions about the rigor of the oversight provided by fiscal sponsors. As a co-founder of a fiscal sponsor organization, I know how much work, training, and attention it takes to operate and why the concerns raised by federal officials about lack of accountability are unfounded.
By introducing burdensome rules on fiscal sponsors that could lead to more aggressive auditing and heightened oversight, the IRS threatens a longstanding infrastructure that advances social entrepreneurship. Reduced access to the capacity and expertise provided by fiscal sponsors would limit would-be nonprofit leaders who lack the resources to navigate complex nonprofit bureaucracy on their own.
Taking on the Grunt Work
Everyone wants to change the world, but no one wants to deal with the IRS. Fiscal sponsors do that, as well as other back-office work, so small nonprofits don’t have to. Fiscal sponsors deal with the red tape and operational complexities that take time and limit organizational capacity for action and impact. They are the quiet champions of the nonprofit field, managing and overseeing billions of nonprofit dollars.
Obstructing fiscal sponsorship arrangements would impede the advancement of organizations that work in arts and culture, education, environmental justice, human rights, public safety, sports, and an array of other causes.
According to the latest data available, 12,000 charitable projects were supported by fiscal sponsors in 2023, and these groups enabled $2.6 billion in philanthropic funds and $575 million in government funding to go to sponsored projects, reports Social Impact Commons.
By providing comprehensive financial oversight and administrative services, fiscal sponsors enable grassroots groups to perform pivotal work in their communities.
For example, Last Mile Food Rescue, a Cincinnati organization that supplies excess restaurant food to food pantries, nearly had to turn down a government grant because it lacked the staff time and expertise to complete its requirements. Fortunately, fiscal sponsor New Sun Rising stepped in to manage the funds. Thanks to this fiscal sponsorship agreement, vulnerable communities received essential resources they would otherwise not have access to.
The Treasury’s new plan to redesign Form 990 may seem like common sense: Certainly, the nonprofit sector should—and does—welcome transparency and compliance with all laws and IRS regulations. This is the very thing fiscal sponsors were designed to do: They oversee every aspect of compliance that small organizations typically lack the knowledge, expertise, and time to report. In fact, studies find that nonprofit fraud, while rare, is more likely when financial scrutiny, controls, and systems — exactly what fiscal sponsors provide — are not in place.
More Red Tape
For this reason, efforts to heighten barriers and create more red tape for fiscal sponsors are misguided. Worse, they reinforce the White House’s recent attempts to undermine nonprofits.
The plan to redesign tax reporting requirements aligns with federal strategies to obstruct progressive movements that advance society, uphold democracy, advocate for environmental justice, protect LGBTQ+ rights, safeguard immigrant communities, and more. A study by the Center for Effective Philanthropy found that organizations focusing on progressive issues were more likely to lose government funding in 2025 than other types of organizations.
This attack on nonprofits that disagree with President Trump is also abundantly clear in the language used in the Treasury announcement. It refers to “extremist activity” and “bad actors,” and accuses fiscal sponsors of “obscuring” information. This language echoes a December memo from then Attorney General Pam Bondi in which she described nonprofits as “domestic terrorists” using “violence or the threat of violence to advance political and social agendas.”
The similarity in language indicates that plans to revise the governance of fiscal sponsors are not a neutral exercise in fiscal responsibility. Rather, they are another attempt to erode the nonprofit sector — especially small, grassroots groups that often lack access to foundations and wealthy donors yet make up the vast majority of nonprofits.
By reframing administrative compliance as a matter of national security, the administration has created a pretext to target organizations whose missions conflict with its political agenda.
Nonprofits, fiscal sponsors, movement leaders, donors, and allies must vigilantly monitor how legal structures may be redesigned to stifle their missions and impact.
The upcoming changes to Form 990 should motivate foundations and nonprofits to stand behind fiscal sponsors. Without the thousands of sponsored projects across the country, marginalized communities could lose their safety nets.
Pillars for Progress
As fiscal sponsors — particularly those whose missions dissent from the current administration — prepare for the potential changes in federal scrutiny, the nonprofit world must move away from seeing these vital groups as mere “back-office support” and instead recognize them as pillars for progress.
Foundations and other donors often rely on fiscal sponsors to channel philanthropic dollars to groups that don’t yet have charity status but are in the process of seeking it — or that are running time-limited projects that don’t require creation of a full-fledged nonprofit. Yet instead of seeing fiscal sponsors as essential players in providing oversight of tax-deductible gifts, many donors complain about the fees sponsors charge for their work. As the costs of our operations are likely to increase, grant makers and donors should consider increased funding for fiscal sponsors so we can continue our rigorous approach to monitoring the organizations we’re incubating.
Nonprofits, foundations, and others can make a big difference by joining us to push for legal protections that distinguish appropriate compliance oversight from political persecution. They can condemn excessive administrative burdens that exhaust time and resources, stall organizational action and impact, and may delegitimize indispensable leaders of social movements. And they can champion a culture of transparency that highlights fiscal sponsorship as a stellar instrument for accountability.
By fortifying the organizations that shoulder the weight of compliance, we ensure that leaders on the front lines can remain focused on their missions and not on their survival.
To learn more about fiscal sponsorships, check out the Social Impact Commons, a national nonprofit sector infrastructure organization focused on building the capacity of fiscal sponsor organizations, as well as the larger field. They're also the first national network and community of practice advancing management commons as "a model of equitable and inclusive resource sharing for the nonprofit sector—a next-generation approach to fiscal sponsorship."