Senator Ted Cruz has “long said that Democrat billionaires are funding left-wing political violence to push anti-American and foreign-aligned interests through tax-exempt entities,” as Cruz told Fox News Digital.

He believes that “The violence that has spread in recent years in our cities and on our college campuses . . . is enabled by funding from well-resourced organizations . . . , including and especially through fiscal sponsorships.”

What is a “fiscal sponsorship” and what do Senator Cruz’s concerns about them mean for charitable initiatives?

 

Fiscal Sponsorship

Fiscal sponsorship is an arrangement that lets a charitable project come under the umbrella of an existing nonprofit public charity with tax exemption under Section 501(c)(3) of the Internal Revenue Code. This allows people to make tax deductible donations to the project by donating to the 501(c)(3) fiscal sponsor of the project. The fiscal sponsor uses the donated funds to support the activities of the project.

Fiscal sponsorship is a great tool for small, under resourced charitable organizations to get the benefits of tax exemption without having to form a nonprofit and apply for tax exempt status themselves.

There are two general types of fiscal sponsorship: (1) the fiscally sponsored project is not a separate entity but just one or more individuals that want to conduct the charitable activity and (2) the fiscally sponsored project is an independent organization – often an organization that has applied for tax-exempt status but has not yet received it.

 

Senator Cruz’s proposed legislation – The SPONSOR Act

In February 2026, Senator Cruz introduced The SPONSOR Act – short for the “Stop Proxy Organizations Nurturing Subversive Operations and Riots Act.” The bill is co-sponsored by Sen. Ted Budd, R-North Carolina, and the House version (H.R. 9721 – Fiscal Sponsorship Transparency Act of 2026) was introduced by Rep. Nathaniel Moran, R-Texas.

The proposed legislation is very short. In summary, it says that an organization acting as a fiscal sponsor “shall bear any criminal liability related to or arising from such fiscal sponsorship, and any civil liability concerning a covered activity related to or arising from such fiscal sponsorship.”

“Covered activities” include aiding and abetting international terrorism; intentionally injuring, intimidating, or interfering with any person lawfully exercising a constitutional right; or intentionally preventing commerce.

The term “fiscal sponsorship” includes any relationship where the nonprofit receives and administers funds “on behalf of a project or organization” and retains discretion and control over such funds.

This definition includes both types of fiscal sponsorships described above.

Note that this legislation would not have a major impact on the first type of fiscal sponsorship described above because fiscal sponsors are already responsible for the activities of the projects they sponsor when the project is not a separate entity. But the legislation expands this liability to include the second type of fiscal sponsorship in which the fiscal sponsee is a separate entity.

The bill also states that the fiscal sponsor “is presumed to be responsible for ensuring that the manner in which its funds are used under any fiscal sponsorship complies with applicable laws, regulations, and tax obligations.” This provision would arguably reduce the burden of proof for a prosecutor or plaintiff going after a fiscal sponsor.

The bill also reduces the threshold for criminal liability by removing knowledge and intent requirements that normally apply under accomplice or conspiracy liability.

The bill allows a sponsor to defend itself by showing it exercised due diligence and reasonable oversight over the sponsored project – but that’s now something the sponsor must prove, not something a prosecutor has to disprove.

 

How worried should we be and what should we do?

As someone who is the president of a nonprofit that is a fiscal sponsor, when I first heard about this bill I thought – this is no big deal because the fiscal sponsor is already liable for everything the programs under it do. My biggest concern is that the bill also proposes to make the fiscal sponsor liable even for things that separate entities do! This is a radical departure from the limited liability principle which is one of the main reasons we create legal entities in the first place.

The good news is that the proposed SPONSOR Act is sitting in the Senate Finance Committee with no hearing or markup scheduled. Most bills die there.

That said, Cruz is tying the bill to an active DOJ investigation into Neville Roy Singham, the husband of Jodie Evans, the founder of Code Pink and it’s one of several related bills he’s introduced on this theme.

So, anything we can do to share stories of inspiring and heart-warming fiscal sponsorships with our federal legislative representatives and to urge them not to support this bill is helpful!  On the state level, if your U.S. Representative serves on the House Ways and Means committee, consider writing to office using this letter template, to share your concerns about the proposed legislation.

 

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Disclaimer: The information contained in this article is for general informational purposes only and does not constitute legal advice. The content provided should not be relied upon as a substitute for consultation with a qualified attorney. For specific legal questions or situations, please consult with a licensed legal professional who can provide advice tailored to your particular circumstances.