Sponsor
Thomas Bryant Cotton
Senator · R-AR
Senator · R-AR
The bill strengthens transparency and penalties to deter and uncover abusive conduit arrangements in charitable giving, at the cost of adding compliance burdens, financial risk for organizations and leaders, and uncertainty for donors.
Donors and regulators: new fiscal-sponsorship reporting (parties, amounts, activities) increases transparency so donors can better evaluate where gifts go and regulators can spot risky conduit arrangements.
Nonprofits and the public: significant taxes on organizations and managers who knowingly route funds through improper conduits create stronger deterrents against diversion of charitable assets and help restore public trust.
Taxpayers/donors: the changes reduce the ability to claim tax deductions for gifts routed through abusive conduit arrangements, discouraging misuse of charitable deduction rules.
Specified tax-exempt organizations: face substantial new compliance costs and exposure to very large tax penalties (potentially up to 120% of a transfer) if fiscal-sponsorship arrangements are judged improper.
Donors/taxpayers: gifts made through fiscal sponsorships may lose expected tax benefits if arrangements are later deemed improper, creating uncertainty and chilling some charitable giving.
Organization managers and potential leaders: new personal tax liabilities (initial penalties and additional amounts) create financial risk that may deter qualified individuals from serving or encourage overly defensive decision‑making.
Based on analysis of 2 sections of legislative text.
Requires reporting on fiscal sponsorships, denies deductions for improper conduit donations, and imposes excise taxes on organizations and managers for improper transfers.
Official title: Amend the Internal Revenue Code of 1986 to require reporting by certain charitable organizations relating to fiscal sponsorship arrangements, and for other purposes.
Introduced July 22, 2026 by Thomas Bryant Cotton · Last progress July 22, 2026
Requires tax reporting for fiscal sponsorship arrangements, defines key terms, and creates penalties for organizations and managers that route contributions through “improper conduit arrangements.” It also denies charitable contribution deductions for donations made through such improper conduit arrangements. Establishes a new excise-tax regime that imposes an initial tax on specified tax-exempt organizations (20%) and a smaller tax on organization managers (5%), with much larger additional taxes if transfers are not corrected during the taxable period; caps manager taxes at fixed dollar amounts. Treasury must issue regulations to clarify the new definitions. The rules apply to taxable years beginning after December 31, 2027.