Sponsor
Thomas Bryant Cotton
Senator · R-AR
Senator · R-AR
The bill boosts transparency and creates strong penalties to deter misuse of charitable conduit arrangements and protect donors, at the cost of substantial new compliance burdens, potential heavy penalties for nonprofits and personal tax risk for managers, and increased uncertainty for donors—especially affecting smaller charities.
Donors and taxpayers: the bill discourages misuse of charitable deductions by targeting improper conduit arrangements, reducing opportunities to claim inappropriate tax benefits.
Nonprofits and donors: requires fiscal sponsorship reporting (parties, amounts, activities), increasing transparency so donors and regulators can better spot and assess risky arrangements.
Charitable sector and the public: imposes significant taxes and penalties on organizations and managers that knowingly route funds through improper conduits, creating stronger deterrents and helping protect charitable assets and public trust.
Tax‑exempt organizations: face substantial new compliance costs and risk large tax penalties (up to 120% of a transfer) if fiscal sponsorship or conduit arrangements are later deemed improper.
Organization managers and leaders: risk personal tax liability (initially up to $10,000 and up to $20,000 additional), which could deter qualified individuals from serving or lead to overly cautious decision‑making.
Donors: may lose expected tax benefits for gifts made through fiscal sponsorships if arrangements are later deemed improper, creating uncertainty that could reduce charitable giving.
Based on analysis of 2 sections of legislative text.
Adds IRS reporting for fiscal sponsorships, denies deductions for improper conduit gifts, and creates new 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 new IRS reporting for fiscal sponsorship arrangements, defines key terms, and creates new excise taxes on transfers that are part of "improper conduit arrangements." It also disallows charitable deduction for contributions routed through improper conduits and gives Treasury authority to issue implementing regulations. Imposes an initial excise tax (20%) on specified tax-exempt organizations and a manager-level tax (5%), with larger additional excise taxes if transfers are not corrected; caps manager-level taxes and phases in effectiveness for taxable years beginning after December 31, 2027.