H.R. 7799: Stop Proxy Organizations Nurturing Subversive Operations and Riots Act

The bill titled the "Stop Proxy Organizations Nurturing Subversive Operations and Riots Act" (or SPONSOR Act) amends the Internal Revenue Code regarding the liability of 501(c)(3) organizations, which are tax-exempt entities such as charities. The key points of the bill are as follows:

Liability for Fiscal Sponsorship

If a 501(c)(3) organization uses its funds to sponsor another organization or project (known as fiscal sponsorship), it will be held liable for criminal actions and civil liabilities arising from that sponsorship under certain conditions. Specifically:

• If a donor can deduct contributions made to the organization on their taxes due to the fiscal sponsorship, the sponsoring organization assumes legal responsibility for any related wrongdoing.

Covered Activities

The bill defines "covered activities" for which the sponsoring organization can be held liable. These include:

• Providing substantial assistance to an organization recognized as a foreign terrorist organization if it engages in acts of terrorism.
• Intimidating or interfering with people exercising their constitutional rights through force or credible threats of force.
• Using force or threats to block the lawful movement of goods in commerce.

Fiscal Sponsorship Definition

The term "fiscal sponsorship" is clarified in the bill: it refers to a relationship where a 501(c)(3) organization administers funds for another project or organization that doesn't have tax-exempt status, while retaining control over how those funds are used.

Presumptive Responsibility

The bill establishes that 501(c)(3) organizations are presumed responsible for ensuring that funds used under any fiscal sponsorship comply with laws and tax regulations. This presumption places the onus on the sponsoring organization to ensure legal compliance.

Defenses

While organizations can be held liable under this bill, they are allowed to present defenses. If they can demonstrate that they exercised due diligence and reasonable oversight regarding the use of their funds in fiscal sponsorship, this may serve as a defense against liability.

Impact on Organizations

Overall, the SPONSOR Act seeks to hold tax-exempt organizations accountable for how their financial contributions influence or support other entities, particularly in contexts where there are risks of unlawful activities.

Relevant Companies

None found