IRS Form 990 Changes for Nonprofits

If your organization is a 501(c)(3), change is coming to how you report your finances to the IRS.

On April 23, 2026, the U.S. Department of the Treasury announced that the IRS plans to revise Form 990, the annual information return filed by most tax-exempt organizations. The proposed changes are focused on improving transparency around areas government contracts, government grants, and fiscal sponsorship arrangements.

While no changes have been finalized yet, and a public comment period will precede any new requirements, the direction is clear, and nonprofits that get ahead of this now will be better positioned when formal rules arrive.

What Is Form 990 and Why Does It Matter?

Form 990 is the annual return that most tax-exempt organizations file with the IRS.

Unlike other returns, the 990 discloses more than just a nonprofit’s finances. It also includes details on program activities, governance structure, executive compensation, fundraising events, public support, and more.

Because it's publicly available and discloses such a variety of information, it also serves as a key transparency tool for donors, grantors, and regulators, not just the IRS.

The last significant overhaul of Form 990 happened in 2008, when the IRS substantially expanded the form and added new schedules covering governance, compensation, and fundraising. That’s not to say nonprofits are unfamiliar to change. Tax law changes in 2017 and 2020 revamped the Form 990T and how unrelated business income was reported, resulting in many organizations developing more detailed accounting processes to “silo” their taxable projects.

What's Changing and Why

The Treasury's announcement identified the following areas where current reporting falls short:

Government Grants and Contracts

Many nonprofits receive substantial funding from federal, state, or local government sources. Under current requirements, it can be difficult for the IRS, or the public, to clearly track how those funds flow in and out of an organization, confirm they're being used for their intended purpose, or verify proper revenue classification.

The proposed revisions would require clearer, more detailed reporting on the sources and uses of government funding.

While this information is not included publicly on Form 990, organizations are typically required to provide very detailed information to the government grantee or contractor periodically. It’s hopeful that organizations will be able to transfer these reporting requirements to the proposed changes, but time will tell. In the meantime, it’s recommended that organizations ensure they are keeping detailed records of all government funded income and related expenditures.

Fiscal Sponsorship Arrangements

Fiscal sponsorship is a structure where an established tax-exempt organization extends its nonprofit status to a project or initiative that isn't independently registered as a nonprofit.

These are sometimes referred to incubator organizations, allowing smaller nonprofits to focus on their mission while the sponsor handles the administrative fiscal responsibilities. It's a longstanding and legitimate practice, but it comes with a significant transparency gap under current rules.

Right now, fiscal sponsors are not required to disclose details about these arrangements on Form 990, and sponsored projects don't file their own returns. Many of these projects may not even have their own employee identification numbers (EIN) yet, making them almost invisible to the IRS. That makes it difficult to determine who is running a project, who controls the funds, and where the money is going.

The proposed changes would require sponsors to identify their sponsored projects, disclose who controls those funds, and provide details on how they're being used. For some fiscal sponsors this could be a formidable task as there is no current federal limit to the number of projects they can hold, with some housing hundreds of projects at a time.

The Broader Context

This announcement didn't happen in isolation. The administration has been open about finding and reducing risks of fraud, abuse, and misuse of taxpayer dollars, as well as homing in on what they consider to be potential extremist activity.

Just one week before the Form 990 initiative was unveiled, the IRS issued a whistleblower alert seeking information about misuse or fraudulent use of federal funds by tax-exempt organizations.

Together, these developments signal a broader shift toward a more active enforcement environment for nonprofits, one where documentation, governance, and reporting clarity will matter more than ever.

It's worth noting that these are still proposed changes. Treasury and the IRS are expected to publish formal regulations and open a public comment period before anything is finalized. The agencies state they will consider administrative feasibility, balance, and reporting burden as they develop these new requirements. No effective date has been announced, and no immediate changes to your current filing obligations apply.

What Nonprofit Leaders Should Do Now

You don't need to wait for proposed regulations to start preparing. Here's where to focus on in the meantime:

• Review your government funding disclosures. If your organization receives grants or contracts from government sources, take a close look at how those are currently reported on your Form 990. Identify any areas where the source, purpose, or use of funds may not be clearly documented.
• Audit your fiscal sponsorship arrangements. If you serve as a fiscal sponsor or operate under one, pull your agreements and map out who controls funds, who approves spending, and where reporting responsibility sits. Any ambiguity in those answers is worth addressing now.
• Assess your recordkeeping systems. The coming changes will demand cleaner, more traceable financial records. If your team relies heavily on manual processes or disconnected systems to reconstruct reporting information at filing time, that's a risk worth addressing before new requirements arrive.
• Engage your board. Form 990 is a governance document as much as a financial one. Board members and officers should understand that expanded disclosures increase visibility and accountability.
• Watch for proposed regulations. When Treasury and the IRS release formal proposed rules, there will be a public comment period. If these changes will significantly impact your organization, consider participating or working with an advisor to understand the implications before rules are finalized.

The Bottom Line

Tax-exempt status comes with public accountability, and the IRS is moving to make that accountability more visible. Whether your organization is a direct recipient of government funding, a fiscal sponsor, or simply a 501(c)(3) navigating an evolving compliance landscape, now is a good time to take stock of your reporting practices and shore up any gaps.

The final rules aren't here yet, but the direction is. Organizations that use this window to get their documentation and governance in order will be far better positioned when they are.

If you have questions about how these changes may affect your organization or want help reviewing your current Form 990 disclosures, our team is here to help.

To learn more about LGT and how we can serve you, contact us here.