Congressional Concerns About Fiscal Sponsorship, Foreign Influence, and Fraud
Members of Congress have recently expressed continuing concerns relating to tax-exempt organizations in three specific areas: fiscal sponsorship, foreign influence, and fraud.
With respect to fiscal sponsorship, Senator Ted Cruz (R-Tex.) has introduced S.3942, titled ‘‘Stop Proxy Organizations Nurturing Subversive Operations and Riots Act’’ or the ‘‘SPONSOR Act’’ (House parallel bill appears to be H.R.7799). The bill would impose criminal and civil liability on section 501(c)(3) organizations arising out of fiscal sponsorship arrangements for which donors are allowed or told they can receive a charitable contribution deduction. “Fiscal sponsorship” is defined as:
a relationship in which an organization described in subsection (c)(3)—
(A) agrees to receive and administer funds on behalf of a project or organization that is not exempt from tax under subsection (a), and
(B) retains discretion and control over such funds to ensure they are used for the purposes for which such organization was organized and operated.
The bill has been referred to the Senate Committee on Finance.
With respect to foreign influence, last month the House Ways & Means Committee held a “Hearing on Foreign Influence in American Non-profits: Unmasking Threats from Beijing and Beyond.” The witnesses were: Scott Walker, President, Capital Research Center; Caitlin Sutherland, Executive Director, Americans for Public Trust; Adam Sohn, Co-Founder, CNRI and CEO, Narravance; Bruce Dubinsky, Founder, Dubinsky Consulting; and Robert Weissman, Co-President, Public Citizen. From the Committee’s post-hearing summary:
Foreign actors are taking advantage of our tax-exempt sector to sow division, chaos, and hate in communities across the country while corrupting America’s political discourse. During a Ways and Means Committee hearing on foreign influence in America’s tax-exempt sector, expert witnesses highlighted the immediate need for more transparency to root out the foreign influence lurking in America’s tax-exempt sector.
The Ways and Means Committee is investigating the money trail between foreign actors and tax-exempt organizations that have been fueling antisemitism, interfering in our elections, and spreading foreign government propaganda. That work has led to referrals to the Biden and Trump IRS of eleven tax-exempt organizations for investigation and possible revocation of their tax-exempt status.
Finally, with respect to both foreign influence and fraud, besides numerous investigations of specific tax-exempt organizations (see ICNL’s Congressional Investments into US Nonprofits tracking website) the Republican members of the House Ways & Means Committee wrote to Acting IRS Commissioner Scott Bessent earlier this year urging him to investigate fraud in Minnesota and elsewhere by tax-exempt organizations as well as foreign influence over such organizations. Those concerns have led to the recent attempts by the Trump administration to block Medicaid funding for the state of Minnesota (coverage: NPR; N.Y. Times).