On April 23, 2026, the U.S. Department of the Treasury announced that the Internal Revenue Service (IRS) plans to revise the Form 990 in order to “detect misconduct and hold wrongdoers accountable.” The changes to the annual information return filed by tax-exempt organizations will focus on improving transparency, strengthening tax administration, and providing clearer reporting of certain transactions by 501(c)(3) organizations, including government contracts, government grants, and fiscal sponsorship arrangements. Treasury believes that clearer reporting around government grants and government contracts will help the IRS and the public better understand on what activities and projects public funds are being spent, which will “reduce the risk of fraud, abuse, and misuse of taxpayer dollars.” Additionally, Treasury raised concerns that some organizations may use fiscal sponsorship arrangements to obscure the source of funds and how funds are being used. Although the press release specifically mentions 501(c)(3) organizations, these changes would impact all tax-exempt organizations required to file the Form 990.
It is difficult to predict how long the revision process may take. Any major changes would need to go through the formal notice-and-comment rule-making procedures under the Administrative Procedures Act, and Treasury has stated that it expects to publish proposed regulations and provide an opportunity for public comment before any revisions are finalized. The last major redesign of Form 990 took place in 2008. At that time, an initial draft of the proposed regulations was released for public comment on June 14, 2007, with a 90-day comment period. The final revisions were not released until the summer of 2008, with a 3-year phase-in period. The 2008 Form 990 revisions were similarly intended to improve accountability and ensure that public funds and assets were used consistently with an organization’s exempt purposes. If the changes do, in fact, go through a notice-and-comment period, we expect it will be several years before the changes to Form 990 are finalized and implemented.
These proposed changes reflect the current atmosphere of increased scrutiny of tax-exempt organizations, particularly relating to fraud and potential links to “terrorism activities” as that term has been defined by the current administration and under federal law. In the press release announcing the changes, Secretary Bessent emphasized that the purpose of these proposed changes is to prevent “fraud, abuse, and extremist activity,” and that directors and officers of 501(c)(3) organizations should understand that “[p]ublic money and tax-exempt status demand public accountability.” Treasury Assistant Secretary and Acting IRS Chief Counsel Ken Kies similarly stated that, “[i]f an organization receives public funds or tax-deductible donations, it should be prepared to show who controls the money and where it goes.”
In light of this increased scrutiny, exempt organizations, particularly 501(c)(3) organizations with government grants and contracts, should examine publicly available information regarding the organization, including what is reported on their Form 990, regarding funding, spending, programs, and activities to ensure that what is documented is consistent with the organization’s stated purpose and that the use of the organization’s funds and charitable assets is accurately documented. Organizations should also confirm that the exempt purposes stated on the organization’s annual return are consistent with the organization’s actual activities. Finally, organizations that serve as fiscal sponsors should ensure that all reporting regarding sponsorships and sponsored entities is consistent and accurate, and should be aware of the potential for increased reporting and transparency related to these arrangements.
Covington will be monitoring this revision process and is prepared to assist organizations who wish to submit comments on the proposed changes. We can also support organizations and donors in navigating any resulting changes.
If you have any questions concerning the material discussed in this client alert, please contact the following members of our Tax practice.
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