SPONSOR Act

Key Points

• The SPONSOR Act would make tax-exempt 501(c)(3) nonprofits legally responsible — both criminally and civilly — for the actions of groups they fiscally sponsor. Fiscal sponsorship is a common arrangement where a nonprofit receives and manages money on behalf of a project that doesn't have its own tax-exempt status.
• The bill defines three specific "covered activities" that trigger liability: aiding international terrorism by a designated foreign terrorist organization, using force or threats to interfere with someone exercising a constitutional right, and physically blocking the movement of goods in interstate or intrastate commerce.
• Nonprofits acting as fiscal sponsors would be "presumed responsible" for ensuring that funds are used lawfully. However, the bill does allow organizations to raise defenses based on due diligence and reasonable oversight, meaning nonprofits that closely monitor their sponsored projects could potentially avoid liability.
• This bill could have a chilling effect on fiscal sponsorship arrangements. Nonprofits may become much more cautious about sponsoring newer, smaller, or politically controversial organizations — especially those involved in protests or activism — because of the heightened legal risk.