Tax Policy Nonprofit Compliance

Treasury Wants More Disclosure on Form 990. The IRS Has Fewer People Than Ever to Read It.

Published May 4, 2026 by Invisible LLC Team · 11 min read

The short version

On April 23, 2026, the U.S. Treasury announced that the IRS will revise Form 990 — the annual return filed by tax-exempt 501(c)(3) organizations — to demand more detailed reporting on three things: government contracts, government grants, and fiscal sponsorship arrangements. Treasury frames the change as a transparency initiative to detect fraud and hold wrongdoers accountable.

There's a problem with that framing. While Treasury was announcing a more demanding Form 990, the same administration has spent fifteen months dismantling the IRS's capacity to actually do anything with the data the form collects. The agency's enforcement budget is at its lowest inflation-adjusted level since 1988. Roughly a quarter of the IRS workforce has left in the past year. The division that audits high-wealth taxpayers has lost 38% of its staff. The House just voted to cut another billion dollars next year.

So yes, the new Form 990 will collect more information. Whether anyone at the IRS will be available to investigate what it reveals is a different question — and on the current trajectory, the answer is mostly no. The damage to fraud detection from the budget and staffing cuts is far larger than any improvement the disclosure changes can plausibly deliver. The two policies pull in opposite directions, and the budget side is winning by an order of magnitude.

There's also a second problem with the framing. If the goal is genuinely to combat corruption flowing through the nonprofit sector, the (c)(3) financial flows targeted by the new Form 990 are the wrong part of the sector to look at. The actual corruption-laundering problem lives in the 501(c)(4) "social welfare" organizations that funnel undisclosed donor money into Super PACs — and Treasury's announcement pointedly leaves that pipeline alone. We'll come back to that.

This post lays out what's actually changing on Form 990, walks through the IRS budget history that makes the new disclosures largely symbolic, and explains where a serious anti-corruption initiative would actually focus.

What's actually changing on Form 990

Form 990 has been the public-facing financial record of the nonprofit sector for decades. The new initiative pushes deeper into three categories that have historically been reported at a high level:

Government contracts and grants. Nonprofits that hold contracts or receive grants from federal, state, or local government bodies will face more granular reporting — likely covering the contracting or granting agency, scope, dollar amounts, and how funds flow through the organization. Today, much of this gets aggregated into general revenue categories.

Fiscal sponsorship arrangements. This is the most consequential piece. Fiscal sponsorship is the long-standing practice where an established 501(c)(3) acts as an umbrella for a project that doesn't have its own tax-exempt status — accepting tax-deductible donations on the project's behalf and passing funds along. It's widely used by accelerators, civic projects, arts initiatives, and early-stage charitable ventures. Under current rules, a fiscal sponsor doesn't have to report where donations originated, and the sponsored project doesn't have to report how the money is spent downstream. The new disclosures aim to close that gap.

Treasury has committed to publishing proposed regulations with a public comment period before anything is finalized, and has acknowledged it will weigh administrative feasibility and reporting burden as it drafts. Final rules will likely be less aggressive than the announcement implies, but the disclosure floor is going up.

The official rationale is reasonable on its face: where public money meets private control, the public deserves to see the wiring. The problem is what happens after the form lands at the IRS.

A recent history of IRS funding

To understand why the new Form 990 is unlikely to do what Treasury says it will do, you have to understand what's happened to the IRS over the past fifteen years. The pattern has clear authorship.

2010 to 2020 — the lost decade. The IRS budget was steadily cut in real terms across both parties' administrations. The Congressional Budget Office found that the share of individual income tax returns examined fell 46% between 2010 and 2018, and the share of corporate returns examined fell 37%. Audit rates on high-income returns dropped especially sharply because complex audits are labor-intensive and the agency simply didn't have the staff.

August 2022 — the Inflation Reduction Act. The Biden administration signed the IRA into law, providing roughly $80 billion in multi-year mandatory funding to rebuild the agency, with the bulk earmarked for enforcement. This was the first sustained re-investment in IRS capacity in a generation. The IRS began hiring — about 800 new staff in the Tax Exempt and Government Entities (TE/GE) division in fiscal 2024 alone — and the CBO projected the full IRA investment would generate roughly $200 billion in additional revenue over a decade.

2023 to 2024 — the rescissions begin. Almost immediately after the IRA was enacted, congressional Republicans began clawing back the funding. The June 2023 Fiscal Responsibility Act (the debt ceiling deal) included the first rescission, and subsequent appropriations bills rescinded more. By late 2024, roughly $42 billion of the original $80 billion had been eliminated before most of it could be spent.

January 2025 onward — the Trump administration accelerates the dismantling. The pattern shifted from gradual erosion to aggressive contraction. The Trump administration moved to reduce IRS headcount across the board through executive action: Reduction in Force procedures, deferred resignation programs, probationary terminations, and the Department of Government Efficiency's broader push to shrink the federal workforce. Treasury formally told the Office of Personnel Management it expected to cut up to 50% of IRS enforcement personnel and 20% across other components.

The numbers from that fifteen-month period are stark. Total IRS staffing dropped roughly 27%. Enforcement staffing fell 31% in a single year. The division auditing high-wealth taxpayers — the part of the IRS most directly responsible for catching the kinds of high-dollar tax avoidance that drive the federal tax gap — lost 38% of its staff. The newly hired enforcement personnel funded by the IRA, who were still in their probationary periods and therefore most vulnerable to layoffs, were hit hardest. The 800-person TE/GE buildup that would have examined the kinds of nonprofit returns the new Form 990 collects was substantially reversed.

February 2026 — the funding deal. The bipartisan FY 2026 spending bill, signed by President Trump, cut the IRS base budget from $12.3 billion to $11.2 billion. Inside that number: a $941 million (23%) cut to technology and operations, a $439 million (8%) cut to enforcement, and a small $256 million increase for taxpayer services. The bill also rescinded another $11.7 billion of remaining IRA funds. The enforcement budget fell below $5 billion for the first time since 2021. Adjusted for inflation, the IRS base budget is now 40% below its 2010 level, and the enforcement account is at its lowest real level since 1988.

April 2026 — the next round. The week before the Form 990 announcement, the House Appropriations Committee voted along party lines to cut the FY 2027 IRS budget by another $953 million, to $10.2 billion, with most of the reduction again falling on enforcement. The Trump administration's own budget request goes further: a $1.4 billion total cut, including roughly $900 million from enforcement. Republican leadership has framed the cuts as efficiency-driven, citing AI and automation as substitutes for staff. The CBO and Treasury Inspector General assessments — and decades of empirical research showing that every dollar of IRS enforcement spending generates multiple dollars in recovered revenue — suggest that framing is wrong.

The arc is unambiguous. The Inflation Reduction Act was a Biden administration initiative. Its dismantling began with Republican-driven rescissions during the Biden administration's budget negotiations in 2023 and 2024, but the dramatic acceleration — the workforce collapse, the rescission of most remaining IRA funds, the ongoing push for deeper cuts — has been a direct result of Trump administration policy since January 2025.

What the cuts actually mean for fraud detection

A clean way to think about this: detecting fraud requires three things working in sequence. You need data, you need people to analyze the data, and you need authority and capacity to investigate and pursue cases the analysis flags.

The new Form 990 improves the first link. It does nothing for the second or third — and the second and third are precisely where the cuts have hit hardest.

Consider what's been lost specifically on the nonprofit side. The TE/GE division is the part of the IRS that examines tax-exempt organizations. Its FY 2025 program letter noted that newly hired staff made up more than half the division's workforce, reflecting the IRA-funded buildup. Those probationary employees were the most exposed when the layoffs started in early 2025. The institutional capacity to actually examine 501(c)(3) returns — including the new disclosures the revised Form 990 will collect — is a fraction of what it was eighteen months ago.

The math is unfavorable in both directions. Estimates of the revenue impact of the workforce cuts cluster around $100 billion in foregone collections from staffing reductions alone, with the rescissions of IRA enforcement funds projected to forgo additional tens of billions over a decade. Against that, the realistic upside of the Form 990 changes — even on the most optimistic interpretation — is incremental: better data on a slice of nonprofit financial flows, useful primarily to journalists, state attorneys general, and watchdog organizations because the federal agency itself lacks the people to act on it.

This is why we said up front that the disclosure changes will be largely symbolic. Symbolism isn't worthless. More granular Form 990 data will help private accountability actors do their jobs, and that has real value. But the framing offered by Treasury — that this initiative meaningfully expands the government's capacity to detect and punish nonprofit fraud — is hard to square with the parallel evisceration of the very enforcement function that would have to do the detecting and punishing.

If the goal is really fighting corruption in the nonprofit sector, here's where to look

Take Treasury at its word for a moment. Assume the administration genuinely wants to surface fraud, abuse, and the misuse of charitable structures to launder money or obscure who controls public funds. If that's the goal, the Form 990 changes are aimed at the wrong part of the nonprofit sector entirely.

The actual scandal in nonprofit financial flows isn't (c)(3) fiscal sponsorship of arts projects. It's the 501(c)(4) "social welfare" organization as a vehicle for moving anonymous money into political campaigns through Super PACs. (c)(4)s can engage in unlimited political activity as long as it isn't their primary purpose, they file Form 990 but don't have to publicly disclose their donors, and they can legally contribute to Super PACs. When that happens, the Super PAC's FEC report shows the (c)(4) as the donor — not the original individuals or corporations whose money is actually being spent. That's the dark money pipeline, and it moves billions of dollars per election cycle through nonprofit structures specifically to obscure the source of political spending.

A Treasury and IRS that were serious about combating corruption flowing through the nonprofit sector would be looking at this pipeline, not at fiscal sponsorship of charitable projects. Three concrete reforms — none of which require new legislation — would do far more than what was announced on April 23:

Modify Form 8872 to require look-through reporting on transfers from 501(c) organizations. Form 8872 is what 527 political organizations, including Super PACs, file with the IRS to disclose contributions and expenditures. A look-through requirement would force Super PACs to identify the original individual or corporate donors behind any (c)(4) or (c)(6) trade association contribution above a meaningful threshold. The IRS has rulemaking authority over Form 8872. It hasn't used that authority for this purpose because no recent administration has wanted to.

Require 501(c)(4) organizations engaged in political activity to file enhanced Schedule B disclosures. (c)(4)s already file Form 990 with a Schedule B listing major donors, but the schedule isn't publicly disclosed and the threshold for inclusion is high. Treasury could require (c)(4)s engaged in any meaningful amount of political activity to file a publicly available version of Schedule B, lower the contribution threshold, and identify donors who specifically earmarked funds for political activity. Again, no legislation required.

Use existing FEC anti-circumvention authority. Federal election law already prohibits "straw donor" contributions — passing money through a third party to obscure the original source. The FEC has consistently declined to interpret that prohibition aggressively against the (c)(4) → Super PAC pipeline, but nothing in the statute requires the narrow reading. A more aggressive FEC rule could treat contributions to a (c)(4) made within a defined window before that (c)(4) makes a Super PAC contribution as presumptively earmarked and requiring source disclosure.

Aggressive (c)(4) donor-disclosure rules face a real constitutional question after Americans for Prosperity Foundation v. Bonta (2021), in which the Supreme Court struck down a California requirement that charities disclose donor lists. The Court treated donor identity as protected by associational freedom. Reforms that target political activity specifically — rather than general organizational support — sit in the strongest legal position, but any of these paths would face litigation. That's a real obstacle, but it's not the reason these reforms aren't happening. They aren't happening because the political coalition currently in power has chosen to direct nonprofit-transparency rulemaking at (c)(3)s and government grants while leaving the (c)(4) → Super PAC dark money infrastructure conspicuously untouched.

The contrast is the story. An administration that announces a transparency initiative aimed at how 501(c)(3) charities spend government grant dollars, while simultaneously gutting the IRS's enforcement workforce and declining to address the largest known dark money pipeline in U.S. politics, is making a choice about what kind of "transparency" it wants. The choice is visible, and it's worth naming.

What this means for your organization

Three things, in plain terms.

First, take the new Form 990 disclosures seriously even though the IRS is unlikely to chase you on them. State attorneys general, charity regulators, journalists, and the people whose donations you accept will be reading. The regulatory cost of getting this wrong has shifted from "an IRS examination" to "a public reputation problem with a lot more eyeballs and a lot less due process." That's not necessarily an easier environment to manage.

Second, audit how you track government contract and grant revenue and fiscal sponsorship flows now, before the proposed regulations land. Cleanup is much harder once the new instructions are out and the deadlines are tight.

Third, plan for an environment where IRS responsiveness is poor across the board — not just on enforcement. Refunds, ruling requests, exempt-status applications, and routine correspondence will all take longer. Build that timeline into anything that has a deadline.

The bigger story, though, is the structural one: the U.S. tax system is being asked to do more with dramatically less, and the resulting mismatch has costs that will land somewhere. Nonprofits that depend on a functioning IRS — for determinations, for audits that resolve faster than they linger, for an enforcement environment that punishes bad actors before they damage the sector's reputation — are going to feel that mismatch directly. The Form 990 announcement is a reminder that policy theater and policy capacity are not the same thing.

Sources

U.S. Department of the Treasury, "Treasury Announces Form 990 Transparency Initiative to Expose Hidden Funding and Strengthen Oversight," press release SB-0470, April 23, 2026 (home.treasury.gov)
Center on Budget and Policy Priorities, "Three Strikes Against Filers This Tax Season: IRS Cuts, No Direct File, Skewed Tax Code Changes," April 2026 (cbpp.org)
Tax Law Center at NYU Law, "The bipartisan budget deal rewards tax cheats and sets up the IRS to fail," February 2026 (taxlawcenter.org)
Tax Policy Center, "Cuts in Spending and Staff Dim Hopes For Transformational Change At The IRS," April 2025 (taxpolicycenter.org)
Congressional Budget Office, "Trends in the Internal Revenue Service's Funding and Enforcement" (cbo.gov)
Federal News Network, "Treasury plans to cut up to 50% of IRS enforcement staff, 20% of other components," April 2025 (federalnewsnetwork.com)
Fox Rothschild, "Partial Government Shutdown Ends With Funding Deal That Will Slash IRS Budget," February 2026 (taxcontroversy.foxrothschild.com)
Accounting Today, "House advances slimmer IRS budget for 2027," April 27, 2026 (accountingtoday.com)
IRS Publication 5313, TE/GE FY 2025 and FY 2026 Program Letters (irs.gov)
Americans for Prosperity Foundation v. Bonta, 594 U.S. ___ (2021)

This post is for general information and isn't legal or tax advice. If your organization handles government grants, contracts, or fiscal sponsorship arrangements and you want to talk through what the new Form 990 disclosures and the broader IRS environment will mean for your books, get in touch.