In February 2026, the House Ways and Means Committee held a hearing examining potential foreign influence in U.S. nonprofit organizations. While much of the discussion centered on foreign actors and politically active entities, the broader themes raised during the hearing could have implications across the entire nonprofit sector.

It is important to note, most nonprofit organizations operate with strong governance, transparent reporting, and entirely domestic funding sources. However, when Congress evaluates systemic concerns, proposed reforms often apply broadly. In this case, much of the focus centered on possible Form 990 changes designed to increase transparency and improve oversight.

Below is a practical summary of the key concerns raised during the hearing and what potential Form 990 changes could mean for tax-exempt organizations of all types.

Congressional Concerns Raised During the Hearing

Limited Visibility Into Foreign Funding

Lawmakers and witnesses expressed concern that current IRS reporting does not clearly distinguish when nonprofit funding originates from foreign individuals or entities.

The issue raised was not that foreign contributions are inherently unlawful. In many contexts, they are permitted. Instead, concerns focused on:

  • The absence of standardized disclosure fields clearly identifying foreign sources on public filings
  • The potential for contributions to move through intermediaries, such as donor-advised funds or layered entities
  • Difficulty for regulators and the public to distinguish domestic from foreign funding streams

From a congressional perspective, the concern was transparency and traceability, particularly in circumstances where public policy or civic discourse may be influenced.

Fiscal Sponsorship and Complex Organizational Structures

Fiscal sponsorship is a common and legitimate model used to incubate projects and support charitable initiatives. However, testimony suggested that public filings may not always clearly reflect the identification of sponsored projects or the detailed financial flows between sponsors and sponsored initiatives. This type of structure, coupled with the lack of disclosure regarding governance or control relationships within multi-entity nonprofit organizations, was frequently identified as a significant transparency blind spot.

Again, the focus was not on prohibiting fiscal sponsorship. Rather, lawmakers questioned whether existing reporting provides sufficient clarity.

Political Advocacy and Indirect Influence

The hearing also addressed perceived gaps in campaign finance transparency, particularly involving Section 501(c)(4) organizations.

Of key concern are Section 501(c)(4) organizations that receive funding from foreign sources.  These organizations may use those funds to support political action committees or other political entities without disclosing the source of the original donation.  Lawmakers believe this type of structure undermines campaign finance rules aimed at keeping foreign money out of U.S. elections.

Oversight and Enforcement Capacity

Some members of Congress raised concerns about IRS enforcement limitations, suggesting that even existing reporting requirements may not always receive consistent review.

The broader theme was that reporting complexity combined with limited oversight may reduce transparency across the system.

Proposed Form 990 Changes and Modernization Efforts

While no legislation has been enacted, a recurring theme during the hearing was the potential modernization of Form 990. Several concepts were discussed to alleviate some of the concerns around the perceived current lack of transparency, including:

Expanded Reporting of Foreign Contributions

  • Clear identification of foreign-sourced contributions above certain thresholds
  • Standardized disclosure fields distinguishing domestic versus foreign funding

Greater Transparency Around Fiscal Sponsorship

  • Identification of sponsored projects directly on Form 990
  • More detailed reporting of funds received and distributed under sponsorship arrangements
  • Clearer disclosure of governance relationships

Enhanced Disclosure of Related Entities

  • More robust reporting of affiliated organizations
  • Improved visibility into financial flows between commonly controlled entities

Beneficial Ownership and Source Questions

  • Additional questions designed to identify whether donations originate from intermediaries
  • Potential disclosure requirements tied to ultimate beneficial ownership in certain circumstances

If adopted, these Form 990 changes would likely apply to all filing organizations, not just those with foreign funding.

A Practical Perspective for Nonprofit Leaders

Working with mission-driven organizations across Central Texas and beyond, Maxwell Locke & Ritter sees firsthand the care and diligence nonprofit leaders bring to governance and compliance. While the February 2026 hearing focused on national security and election integrity concerns, the potential Form 990 changes discussed could reach far beyond a narrow group of organizations. The takeaway is not alarm, but preparation.

Now is a prudent time to review your organization’s reporting processes. Proactive compliance planning can reduce risk, strengthen transparency, and position your organization to respond confidently if reform becomes reality. Organizations that maintain strong donor documentation, clearly define governance and control relationships, properly track related entities, and prioritize accurate and complete Form 990 reporting will be best positioned to adapt.

At Maxwell Locke & Ritter, we care about your success and are dedicated to helping nonprofit organizations navigate evolving compliance expectations with clarity and confidence. If you would like to review your Form 990 reporting practices or discuss how potential Form 990 changes could impact your organization, our nonprofit tax team is here to help.