Why Your Next Form 990 Might Look Very Different
In April 2026, Treasury Secretary Scott Bessent said something that should get every nonprofit's attention: "tax-exempt status is not immunity from scrutiny." He wasn't making an abstract point about accountability — he was announcing a Treasury and IRS initiative to overhaul Form 990, the annual information return nearly every tax-exempt organization has to file, with a specific target: how nonprofits report government grants, government contracts, and fiscal sponsorship arrangements.
If your organization receives any federal, state, or local funding, or if you sponsor (or are sponsored by) another nonprofit's project, this is worth understanding now — not when the proposed regulations land. The direction of travel is clear even before the rulemaking is final, and the organizations that will handle it best are the ones whose books already separate restricted money from unrestricted money in a way that can survive a much harder look.
What Treasury Actually Announced
On April 23, 2026, Treasury and the IRS signaled that Form 990 — the public disclosure document that funds sites like GuideStar/Candid and ProPublica's Nonprofit Explorer — is getting restructured to "better detect fraud, abuse, misuse, and extremist activity" in the tax-exempt sector. Two areas are named specifically:
Government contracts and grants. Today's Form 990 asks organizations to report total revenue and break it into broad buckets (contributions, program service revenue, investment income, and so on). It does not require a clean split of federal versus state versus local funding, does not ask which agency provided the money, and doesn't require organizations to state whether the funds are restricted to a specific use. The expected change is a dedicated schedule that forces exactly that breakdown — source by source, agency by agency, restricted or not.
Fiscal sponsorship arrangements. This is the bigger shift. Fiscal sponsorship is a completely legitimate, decades-old structure that lets a new or small project operate under an existing 501(c)(3)'s tax-exempt umbrella instead of incorporating and filing for its own exemption. Right now, Form 990 has essentially no dedicated reporting for these arrangements — a sponsor's grants and disbursements to sponsored projects can get folded into normal-looking line items. Congressional oversight staff have raised concerns that this structure, precisely because it's opaque on the current form, could be used to obscure who's actually running a project, who controls the money, and how it's being spent. The proposed fix is a new schedule requiring project-by-project detail: how much is held for each sponsored project, whether those funds are segregated or commingled with the sponsor's general funds, and who has authority to direct spending.
The stated goal is to give the IRS structured data it can run through automated risk-detection models — the same logic already used to flag anomalies on individual and business returns, applied to the nonprofit sector's public disclosures. This follows a Treasury whistleblower alert seeking tips on the misuse of federal funds and self-dealing inside exempt organizations, so the enforcement posture behind this is real, not theoretical.
What hasn't happened yet
Nothing is final. Treasury and the IRS still need to publish proposed regulations and run a public comment period before anything becomes a filing requirement — commentary from major accounting firms suggests that could land before the end of the calendar year, but no effective date exists yet. If your first instinct is to panic-redesign your chart of accounts overnight, don't. The better move is to understand why this scrutiny exists and shore up the underlying bookkeeping now, because good grant and fund accounting doesn't get worse when a new schedule shows up — it gets easier to fill out.
Why Fiscal Sponsorship Attracts Extra Scrutiny (Even When Nothing Is Wrong)
Fiscal sponsorship comes in a few different flavors, and the accounting obligations differ sharply between them:
- Model A (comprehensive/direct) — the sponsored project has no separate legal identity. It operates entirely inside the sponsor's structure: the sponsor's staff, the sponsor's bank account, the sponsor's insurance. The project's finances are just a line inside the sponsor's own books.
- Model C (pre-approved grant relationship / indirect) — the project retains its own legal identity (often a separate nonprofit still working toward its own exemption, or simply an unincorporated initiative), and the sponsor receives, holds, and grants out funds on the project's behalf. The sponsor records incoming contributions as revenue with donor restrictions, then records a grant expense as it disburses funds to the project.
Model C is where reporting gaps are easiest to create by accident. A funder writes a check to the sponsor "for" the sponsored project. If the sponsor's books don't tag that inflow and its corresponding outflow as belonging to a specific project with a specific restriction, the money can sit in the sponsor's general fund balance looking indistinguishable from unrestricted revenue — even though it was never the sponsor's to spend freely. That's not fraud; it's usually just underspecified bookkeeping. But it's exactly the ambiguity the new Form 990 schedule is designed to eliminate, and it's exactly the kind of gap an IRS automated screen would flag first.
A useful sanity check that predates any of this rulemaking: on a fiscally sponsored project's balance sheet, the assets and liabilities tied to sponsorship should net to zero for the sponsor, and best practice is to hold sponsored-project funds in a separate bank account entirely rather than commingling them with general operating cash. If your organization can't currently produce a project-by-project accounting of every fiscally sponsored relationship — how much came in, how much went out, what's left, who authorized each disbursement — that's the gap to close before a mandatory schedule forces the issue.
Getting Your Grant Accounting Audit-Ready
Whether or not you touch fiscal sponsorship, the government-grant half of this overhaul rewards the same fix: cleaner separation between restricted and unrestricted money, at the source.
1. Split net assets by restriction, not just by fund name. Under nonprofit accounting standards, every contribution lands in one of two buckets: net assets with donor restrictions, or net assets without. A restriction is anything the funder specified — a purpose, a time period, or both. The habit that causes problems later is recording a restricted grant as ordinary revenue because the check "just came in" and nobody flagged the award letter's conditions at the time.
2. Keep a restriction register. For every restricted grant or contribution, log the funder, the amount, the specific purpose or time limit, the award letter or agreement, and running spend-to-date against it. When funds are used for their stated purpose, they get formally released from restriction and reclassified — that release should be a deliberate journal entry, not an assumption made at year-end.
3. Tag revenue and expense by source, not just by amount. If your books can already answer "how much of this year's revenue came from the Department of Labor versus a state contract versus a private foundation," you've done most of the work a new government-funding schedule would ask for. If that question requires digging through bank statements and old award letters, it's worth building that structure now — a chart of accounts or a tagging scheme that separates funding source from expense category, so a report can be sliced either way without re-entering data.
4. Treat sponsored-project funds as pass-through, always. If you're a sponsor, every dollar in and every dollar out for a sponsored project should be traceable to that specific project from day one — not aggregated into "grants payable" as an undifferentiated pool. If you're a sponsored project, keep your own parallel records even though legally the sponsor's books are the official ones; you'll need them to reconcile, and eventually to spin off into your own exemption if that's the plan.
5. Document who has authority. For both government grants and fiscal sponsorship, the new scrutiny is fundamentally about control: who can authorize spending, who signs off on releases from restriction, who approves sub-grants to a sponsored project. A simple signing-authority matrix, reviewed by the board annually, closes a governance gap that's easy to overlook and increasingly likely to be asked about directly.
None of this is exotic. It's the accounting discipline nonprofit finance staff have always been taught to practice — the difference is that a public, structured IRS schedule is about to make the absence of that discipline visible to anyone who pulls your Form 990.
Keep Your Books Ready for Scrutiny, Not Just for Filing
The organizations that will handle an expanded Form 990 without a scramble are the ones whose ledgers already distinguish restricted from unrestricted funds, track every dollar back to its funding source, and keep sponsored-project money segregated as a matter of routine — not as a special project undertaken once a new form arrives. Beancount.io's plain-text accounting makes that kind of granular, source-tagged, fully auditable record-keeping the default rather than the exception: every restriction, every grant, and every fiscally sponsored dollar lives in version-controlled, human-readable files you can hand to an auditor, a board member, or eventually the IRS with total confidence in what they'll find. Get started for free and build books that are ready for whatever the next Form 990 schedule asks for.