By Luke Lamb, CPA, Senior Manager, and Cory Schunemann, CPA, Manager at Blue & Co.

In the past month, the Office of Management and Budget (OMB) announced proposed changes to the government-wide rules for federal grants. Further, the Department of the Treasury announced an intent to pursue public disclosure requirements on Form 990, focusing on government contracts, grants, and fiscal sponsorship arrangements.

These announcements signal additional documentation, and compliance may be required for exempt organizations to continue receiving federal grants, followed by adequate disclosure on the annual Form 990 informational tax return.

Although the proposed regulation changes from OMB were released subsequent to the Treasury’s announcement of plans to revise the Form 990, the proposed OMB changes provide additional context to the expected Form 990 changes. These expected changes focus on requiring organizations receiving federal funding and engaging in fiscal sponsorship arrangements to provide additional details to the IRS and to the public on their annual Form 990 filing.

Proposed Changes by the Office of Management and Budget

The proposed changes are described by OMB as improving transparency, accountability, and oversight, allowing the government and public to confirm use of federal funds, and reducing recipient burden. In large part, the OMB proposals serve as a codification of various executive orders issued by President Trump, clarification of regulatory status such that OMB regulations would preempt individual agency practices, thereby centralizing more federal grantmaking powers with OMB.

These changes will have ramifications for a wide range of federal recipients, and it is expected that some organizations could experience reduced access to federal funding depending on how the proposed eligibility and compliance provisions are implemented.

Intended Improvements

Many of the proposed policy changes will affect government operations and organizations that are applying for government awards. Nevertheless, many of the proposed OMB revisions to the Uniform Guidance are intended to decrease organizations’ barriers to federal funding.

Anticipated improvements include:

• Clearer guidance: Future changes to OMB will have one government-wide effective date, which is intended to clarify the requirements for applying for federal awards such that organizations may more quickly understand which rules are in use by a particular agency before funds are awarded. This should result in quicker implementation of legislative changes.
• Additional fraud protections: proposed changes require the Office of the Inspector General to transmit award disclosures to the U.S. Attorney’s Office within 10 days to ensure that credible allegations of fraud or misconduct can be addressed as soon as possible.
• Faster distribution of funds: opportunities for funding must be posted at least 30 days in advance, except in exigent circumstances.
• Clarity on eligibility: Where permitted by law, the proposed changes restrict eligibility for application of federal awards to certain non-profit types. This change is intended to provide greater clarity on who may be eligible for a particular award to prevent organizations from expending excessive resources to apply for an award they were not eligible for at the onset.
• Increased multi-year grant opportunities: proposed changes encourage Federal agencies to design multi-year awards when they are consistent with program objectives. These awards could provide increased efficiency and stability for qualifying organizations.
• Increased Internal Control Discretion: under the proposed changes, the OMB will no longer require Committee of Sponsoring Organizations of the Treadway Commission (COSO) or U.S. Government Accountability Office (GAO) frameworks – although these frameworks may continue to be utilized – giving organizations reasonable discretion in internal control practices.

• A Federal agency, the Inspector General, or the GAO may only impose additional audits when authorized by statute. This change is intended to reduce unnecessary audit burdens on recipients by preventing agencies from layering audit requirements on award applicants.

Increased Grants Compliance Restrictions and Requirements

Although many of the proposed OMB changes focus on increasing government efficiency, others also restrict the use of federal grant funds and increase the compliance efforts necessary to receive federal funding.

Anticipated restrictions and requirements:

• Removal of fixed-amount subawards: The proposed changes eliminate fixed-amount subawards, as the OMB has pointed to insufficient transparency and oversight of this award format in the past.
• Prohibits the use of federal awards in promoting or supporting theories of disparate-impact liability, abortion, DEI, gender ideology, and transitioning of children—as outlined in Executive Order 14187—under the age of 19 to the maximum extent of the law.
• Federal funds may not be used for advertising, conference attendance, fundraising & investment fees, publication costs, subscriptions, selling, and marketing costs. Organizations seeking funding for such costs will likely require pre-approval from the Federal agency.
• Prohibits use of federal funds for voter registration campaigns, influencing the Executive branch or any state government, other like activities, and abortion, except where required by law. It should be noted that the IRS also restricts most exempt organizations from engaging in many political activities.
• Increased hiring scrutiny: All recipients and subrecipients of federal financial assistance will be required to participate in the Department of Homeland Security’s E-Verify program to determine the eligibility of employees and contractors hired to perform work in the U.S. as part of a federal award.
• Additional verification of recipients: Federal agencies will be required to verify recipient eligibility for awards via the Department of the Treasury’s Do Not Pay (DNP) System, and states must also conduct pre-payment verification checks prior to disbursing federal funds.

Comments on the OMB proposals are due by July 13, 2026. Implementation of the proposed changes is slated for October 2026.

Form 990 Disclosure Initiative

In April 2026, the U.S. Department of Treasury announced an initiative to revise Form 990 to expand reporting requirements related to government grants, contracts, and fiscal sponsorship arrangements. Treasury has broadly stated that this increased focus on transparency is intended to detect misconduct and hold bad actors accountable, similar to the OMB proposed changes for federal funding. It is expected that organizations that receive government funding or engage in fiscal sponsorship arrangements will be required to provide more information to the IRS and to the public on future Form 990 filings.

However, Treasury and the IRS have yet to release proposed regulations outlining any changes to Form 990 or additional laws that exempt organizations must comply with. Such proposed regulations could be issued before the end of the calendar year, although such a timeline has yet to be provided by Treasury and the IRS.

Proactive Counsel

Although Treasury and the IRS have yet to release proposed regulations that detail expanded Form 990 reporting requirements, there are many actions that exempt organizations can take today to better prepare for forthcoming tax law changes, such as:

• If your organization receives a federal award or subaward, start documenting how the funds are utilized, where they originated, and to whom they were paid.
• If you suspect that your organization will receive a federal grant, proactively document the origination of the funding.
• When proposed regulations are provided by Treasury and the IRS, consider providing comments on the proposed regulations.

Support from Blue & Co.

Blue & Co. is committed to assisting clients in navigating these new requirements to ensure continued compliance. Our experts will help organizations evaluate how the proposed changes may affect their operations and identify necessary steps to maintain compliance. For questions or further guidance, reach out to your trusted Blue & Co. advisor.