February 2026  

Two proposed bills, both called the “SPONSOR Act” (S. 3942 and H.R. 7799) 

Sen. Ted Cruz (R-TX) and Rep. Nathaniel Moran (R-TX-1) have introduced identical bills — the Stop Proxy Organizations Nurturing Subversive Operations and Riots (SPONSOR) Act — that would amend Section 501(c)(3) of the Internal Revenue Code (IRC) to make fiscal sponsors responsible for any criminal liability related to or arising from the fiscal sponsorship, and civil liability for a “covered activity” related to or arising from the fiscal sponsorship. 

Covered activities include:

  1. aiding and abetting an act of international terrorism,
  2. interfering with any person lawfully exercising or seeking to exercise a constitutional right through force, threat of force, or physical obstruction, and
  3. intentionally preventing the “lawful movement of interstate and intrastate commerce” using force (or a credible threat of force) or by physically blocking the movement of any article or commodity used in commerce.   

Because nonviolent protests or demonstrations may delay or obstruct traffic or commercial activity, the final provision could be interpreted to cover nonviolent protest activity, which could have a chilling effect on nonprofit advocacy, particularly advocacy related to areas targeted by the current administration.  

This is a very broadly worded scope of liability, and the burden would be on fiscal sponsors to show they are not liable.    

The bills also provide for a “presumption of responsibility” such that a fiscal sponsor is presumed to be responsible for ensuring that the manner in which its funds are used under the fiscal sponsorship complies with applicable laws, regulations, and tax obligations.   

The bills propose rules that would be a big departure from current law

Current law already requires that fiscal sponsors charitable funds received on behalf of a sponsored organization or project are distributed for purposes that are consistent with and in furtherance of the sponsor’s exempt purpose.  In addition, under the Model A (Direct Project) form of fiscal sponsorship, in which the project is part of the sponsor’s program activities, the sponsor often bears liability for unlawful conduct by the sponsored project.  The SPONSOR Act would, however, expand this liability to all types of fiscal sponsorship, including arrangements in which the sponsor merely provides grants or administrative support to a separate entity.  

Potential impact

If passed, the SPONSOR Act would likely suppress the willingness of organizations to serve as fiscal sponsors — or may cause many organizations to begin to back away from supporting causes and activities that are viewed by some as controversial or that are under federal scrutiny.  For now, the SPONSOR Act bills have not moved beyond referral to the Senate Finance and House Ways and Means Committees, but regardless of whether the SPONSOR Act is passed, to mitigate risks, organizations serving as fiscal sponsors should regularly review their processes and policies and identify ways to shore up potential risks associated with being a fiscal sponsor.    

The collapse of several prominent fiscal sponsors in 2025, including the late 2025 collapse of the Federation of Neighborhood Centers (FNC), a Philadelphia fiscal sponsor that was supposed to help community groups manage grants and provide other supports, is another important reminder that all organizations serving as fiscal sponsors should be vigilant about compliance and adhere to best practices.  

For more about the collapse of FNC and other fiscal sponsors, and the impact on their sponsored projects and organizations, see Hot Topic Insight Fiscal sponsors are imploding — Do something different, and these articles from the Philadelphia Inquirer: