Proposed Form 990 Overhaul -What Virginia Nonprofits Need to Know About New Transparency Rules
The U.S. Department of the Treasury announced on April 23, 2026, that the Internal Revenue Service plans to revise Form 990 for the first time in nearly two decades . This marks the most significant change to the annual information return filed by tax-exempt organizations since the last major redesign in 2008 . For Virginia nonprofits, understanding these proposed changes is essential for maintaining compliance and protecting their tax-exempt status.
Why Form 990 Is Being Revised
The Treasury Department’s announcement cited several objectives for the revision, including improved transparency, strengthened tax administration, and clearer reporting on certain activities . Treasury Secretary Scott Bessent emphasized that the purpose of these proposed changes is to prevent “fraud, abuse, and extremist activity,” stating that “[p]ublic money and tax-exempt status demand public accountability” .
Treasury Assistant Secretary and Acting IRS Chief Counsel Ken Kies similarly noted that “[i]f an organization receives public funds or tax-deductible donations, it should be prepared to show who controls the money and where it goes” .
The proposed changes reflect the current atmosphere of increased scrutiny of tax-exempt organizations, particularly relating to fraud and potential links to “terrorism activities” as defined by the current administration and under federal law .
Three Key Areas of Change
1. Government Grants and Contracts
Currently, government grants are reported separately from other types of contributions on Form 990, but there is no requirement to show how specific governmental funds are spent . The proposed changes would require organizations to report not only the receipt of government grants and contracts, but also how those funds are specifically used .
This would add a new layer of accountability and public transparency around governmental funding . Organizations that receive substantial funding from federal, state, or local government sources may need to provide clearer, more detailed reporting on the sources and uses of government funding.
2. Fiscal Sponsorship Arrangements
Fiscal sponsorship arrangements are another area of concern identified by the Treasury Department . Tax-exempt organizations are often approached by individuals or groups who want to conduct a charitable activity but don’t have the means or long-term goals that warrant creating a new tax-exempt organization . Existing organizations may choose to sponsor these activities.
Currently, there is no required reporting for fiscal sponsorship arrangements on Form 990 . Proposed reporting changes would require disclosure of who is operating the project, who controls the funds, and how the funds are used . Treasury raised concerns that some organizations may use fiscal sponsorship arrangements to obscure the source of funds and how funds are being used .
3. Increased Scrutiny of 501(c)(3) Organizations
The proposed changes specifically target 501(c)(3) organizations, particularly those that receive government grants, have government contracts, or participate in fiscal sponsorship arrangements . The IRS expects that these changes will impact all tax-exempt organizations required to file Form 990 .
Timeline for Implementation
It is difficult to predict how long the revision process may take . Any major changes would need to go through the formal notice-and-comment rule-making procedures under the Administrative Procedures Act . Treasury has stated that it expects to publish proposed regulations and provide an opportunity for public comment before any revisions are finalized .
The last major redesign of Form 990 took place in 2008 . At that time, an initial draft of the proposed regulations was released for public comment on June 14, 2007, with a 90-day comment period, and the final revisions were not released until the summer of 2008, with a 3-year phase-in period . If the changes do go through a notice-and-comment period, we expect it will be several years before the changes to Form 990 are finalized and implemented.
How Virginia Nonprofits Can Prepare
In light of this increased scrutiny, organizations, particularly 501(c)(3) organizations with government grants and contracts, should take proactive steps :
1. Review Public Disclosures: Examine publicly available information regarding your organization, including what is reported on your Form 990, regarding funding, spending, programs, and activities to ensure that what is documented is consistent with the organization’s stated purpose .
2. Ensure Consistency: Confirm that the exempt purposes stated on your annual return are consistent with your organization’s actual activities .
3. Document Fiscal Sponsorships: If your organization serves as a fiscal sponsor, ensure that all reporting regarding sponsorships and sponsored entities is consistent and accurate .
4. Track Government Funds: Review how government grants and contracts are tracked, so your organization can clearly demonstrate the source, purpose, and use of public funds .
5. Enhance Internal Reporting: Enhance internal reporting processes to support potential new disclosures on how specific government funds are spent and allocated across programs and activities .
6. Strengthen Oversight: Strengthen board oversight, internal controls, and fund stewardship procedures to address heightened scrutiny around transparency, accountability, and misuse of charitable assets .
7. Assess Systems: Assess whether current accounting and compliance systems can support more detailed reporting requirements .
At Nova Tax & Accounting Services , our Form 990 preparation service and assurance and compliance services can help Virginia nonprofits prepare for these upcoming changes. Schedule your free consultation today to discuss your organization’s compliance needs.