A Conversation with the Capital Research Center’s Robert Stilson (Part 2 of 2)

Michael E. Hartmann talks to the research analyst about his proposed new IRS Form 990 Schedule S for nonprofits that provide fiscal sponsorships and how it would increase trust in the entire sector.

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Published late last month, Capital Research Center senior research analyst Robert Stilson‘s four-part series, “Thinking About Fiscal Sponsorship,” thoughtfully describes how the nonprofit funding mechanism works, overviews its history and purpose, and proposes some potential reforms that would balance the benefits it provides to the nonprofit sector with the drawbacks it causes for the transparency of and thus trust in the sector.

Specifically, he proposes a new Schedule S that nonprofit fiscal sponsors would file as part of their Internal Revenue Service Form 990s. The additional document would include more information about sponsored organizations and projects than is now reported and publicly available.

Stilson was kind enough to join me for a recorded conversation last week. In the first part of our discussion, which is here, we talk about fiscal sponsorship—including how it works, its history and purpose, its apparent growth, and the benefits it provides, one of which may be considered a drawback.

The just more than 13-minute edited video below is the second part, during which Stilson discusses his recommended new Schedule S for nonprofits that provide fiscal sponsorships and how it would increase trust in the entire sector.

In considering any reform of fiscal sponsorship, “I think there’s a balance you have to strike,” Stilson tells me. “I’m not saying that fiscal sponsorship should be restricted meaningfully” or that “it’s some terrible thing out there. I think it does a lot of good. I think it helps the nonprofit sector advance new projects and do it in creative ways.

“The idea I had,” he continues,

was more to increase the transparency around them without burdening the operations of them in any way. At least, that seemed to make sense to me. I thought the best way to do this would be through updates to the Form 990. … There’s no disclosure of fiscal sponsorship on the form. I think you could change that, I think you can do that pretty easily.

Depending on what you do as a nonprofit, you’re required to file any number of schedules with your 990. … The very next unused letter in the list of IRS schedules would be Schedule S … Why not have a new schedule for fiscally sponsored projects. Very simple. All you have to do is, you could structure it just like the current Schedule  I. You could have a table list all fiscally sponsored projects—revenue, expenses, assets, principal officer, have you applied [for tax exempt status]?, yes or no, date upon which sponsorship began and ended, if applicable. Done. You would just have that schedule and that way, you would have a total disclosure at least of who’s sponsoring which projects on the delayed timetable that the 990s are released on.

A Schedule S would impose no new regulatory burden on nonprofits that fiscally sponsor, according to Stilson. “It wouldn’t involve any new information to collect. This is all information presumably they have at their fingertips, because they’re required to maintain” budgets for sponsored groups or projects. It would “just be a matter of publicly reporting” what should be existing, already-collected information about them.

Nor could Schedule S be said to impinge on donor privacy. “I think any of the legitimate concerns around donor privacy aren’t involved here at all,” he says. “It wouldn’t have any sort of disclosure of donors to the projects or the nonprofits outside of what is already required on the grantmaking side, right? … There’s no donor-privacy issue. Nobody’s name is going to be out there as giving to a project.”

Stilson draws a distinction between what he calls “organizational transparency” and “individual privacy,” calling it “a bright line.” He acknowledges that the organizational/individual distinction might theoretically allow for certain additional regulation of institutional donors, such as private foundations and donor-advised funds.

As for fiscal sponsorship, “let’s talk for a minute about why this is so important,” Stilson says. Fiscally sponsored

projects have become so important to this whole ecosystem of what’s going on. I mean, you can just name them off the top of your head, fiscally sponsored projects that just within the last few years have been nationally, socio-politically relevant—Black Lives Matter Global Network Foundation, Demand Justice, Movement for Black Lives, all these things that have become national news. … Nobody can have any information about their financials. It’s important.

More largely, “I worry about keeping public faith in the institution of in the tax-exempt sector and I fear that the way fiscal sponsorship operates—particularly in the public-policy area, even in the political sphere …” he says, “I fear that the way it currently is looks dark to people and looks a little bit ‘behind the scenes.’ And I think if you had this modest level of disclosure, you could counteract a little bit that perception.”

“We’ve collectively, society, through our elected representatives,” Stilson concludes, “made the choice to incentivize the activities of these groups through tax advantage, and I think we should be able to verify what they’re doing with their money.”

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This article first appeared in the Giving Review on February 11, 2025.

Source: https://capitalresearch.org/article/a-conversation-with-the-capital-research-centers-robert-stilson-part-2-of-2/