An IRS complaint, a bipartisan Senate Commerce Committee report, and Form 990 disclosures together trace how a tax-exempt charity with nearly $900 million in 2023 receipts routed millions through a fiscally sponsored project to the private contingency-fee firm suing Exxon, Chevron, and BP on behalf of more than two dozen states and cities — a structure now squarely in the path of a Treasury-led overhaul of nonprofit reporting rules.
For the better part of a decade, climate-damage suits filed by Democratic-led cities and states have proceeded on the theory that the lawyers driving them work on contingency, putting their own balance sheets at risk in pursuit of multi-billion-dollar awards from oil and gas defendants. A growing paper trail tells a more complicated story: the San Francisco-based plaintiffs’ firm at the center of that campaign, Sher Edling LLP, has been collecting millions of dollars in tax-exempt grants — money that, by definition, is not at risk because donors have already taken a charitable deduction on it.
The grants flow from the New Venture Fund (NVF), a 501(c)(3) public charity managed by the for-profit consulting firm Arabella Advisors. Between 2017 and 2023, according to a memo released by the Senate Commerce Committee and corroborated by filings reviewed by the Capital Research Center, NVF and a related Arabella-sponsored project wired more than $13 million to Sher Edling and reserved another $10 million for future disbursement. In November 2025, the watchdog group Americans for Public Trust and the American Accountability Foundation each asked the Internal Revenue Service to determine whether those grants — and roughly $200 million in management fees that NVF has paid to Arabella since 2006 — qualify as “excess benefit transactions” that would justify revocation of the fund’s tax-exempt status.
The complaints arrived months before a Treasury Department announcement that the IRS will rewrite Form 990 to force more granular disclosure of fiscal sponsorship arrangements and foreign grant recipients. Treasury Secretary Scott Bessent, in announcing the overhaul, framed the move as the end of “hiding fraud, abuse, and extremist activity behind complicated nonprofit arrangements.” The Sher Edling pipeline is among the most fully documented test cases for the new regime.
The Money Trail
The Senate Commerce memo, released by ranking member Sen. Ted Cruz (R-Tex.) and House Oversight Committee chairman Rep. James Comer (R-Ky.) following a two-year investigation, identifies the Collective Action Fund for Accountability, Resilience, and Adaptation (CAF) as the immediate funding vehicle for Sher Edling. CAF is not a separately incorporated charity; it is one of more than 80 fiscally sponsored projects housed inside the New Venture Fund. It maintains no public website. Its donors and grants are aggregated into NVF’s single Form 990, which makes them difficult to isolate without the kind of granular reporting the Treasury overhaul would require.
According to the congressional memo and contemporaneous reporting on the underlying tax filings, the documented disbursements include:
- $5.2 million wired from CAF to Sher Edling between 2017 and 2020, while CAF was still housed at the Resources Legacy Fund prior to its move to NVF.
- $3 million transferred from NVF/CAF to Sher Edling in 2021.
- $2.5 million transferred in 2022.
- $2.9 million transferred in 2023, the most recent year of full disclosure.
- An additional $235,000 from the Tides Foundation in 2022, previously undisclosed prior to the congressional inquiry.
Major identified donors to CAF include the MacArthur Foundation ($9 million since 2017), the JPB Foundation ($3.3 million between 2020 and 2022, with another $1.15 million approved for future payment), and six- and seven-figure totals from the Hewlett Foundation, the Rockefeller Brothers Fund, and the Gordon and Betty Moore Foundation. Public filings also document a 2017 donation from actor Leonardo DiCaprio’s foundation, made before CAF’s transfer to the Arabella network.
NVF itself reported approximately $887 million in gross receipts on its 2023 Form 990 and disbursed nearly $600 million in grants to over 1,000 organizations that year, according to aggregations of its tax filings. The four flagship Arabella-managed charities — NVF, the Sixteen Thirty Fund, the Hopewell Fund, and the Windward Fund — together moved roughly $1.2 billion in 2023.
Contingency-ish
The architecture of climate damages litigation rests on a contingency-fee bargain: outside counsel risks its own time and overhead in exchange for a slice of any recovery. In practice, contracts between Sher Edling and its public-sector clients have produced fee schedules tilted heavily toward the upper end of contingency norms. Filings reviewed by Energy In Depth show that Minnesota’s retainer agreement guarantees Sher Edling 16.67 percent of the first $150 million recovered and 7.5 percent above that threshold. San Francisco’s contract permits Sher Edling and a co-counsel firm to take a combined 25 percent of the first $100 million, 15 percent of the next $50 million, and 7.5 percent of any remainder.
Those numbers matter because the universe of potential damages is large. Sher Edling represents the states of Delaware, Hawaii, Maine, Minnesota, Rhode Island, New Jersey, and Massachusetts, the District of Columbia, and a long list of municipalities including Baltimore, Chicago, Honolulu, New York City, Oakland, Richmond, Annapolis, and several California counties. Independent litigation analysts have estimated the cumulative requested relief in active climate-deception suits in the tens of billions of dollars.
The Senate Commerce memo argues that the contingency-fee framing breaks down once the firm is also receiving non-recoverable grants from a tax-exempt sponsor. “These funding arrangements allow donors to receive tax deductions for contributions that ultimately support litigation,” the memo concludes, “whereas direct donations to political candidates or advocacy organizations would not be tax-deductible.” Put differently: foundation donors can subsidize a private law firm’s case files at a discount the federal Treasury underwrites, while the firm retains the upside if a jury or settlement delivers a recovery.
What the IRS Complaints Allege
The November 2025 complaint from the American Accountability Foundation, summarized in filings reviewed by Fox News, asks the IRS to take three separate actions against NVF: revoke its 501(c)(3) status, impose excise taxes on what the complaint calls “improper excess benefit transactions,” and assess penalties on individual officers who approved them. The filing alleges NVF has paid Arabella Advisors more than $200 million since 2006 in “administrative services” fees, much of it through a long-running services agreement that the complaint contends was negotiated by overlapping personnel rather than at arm’s length.
A separate complaint filed by Americans for Public Trust focuses on the Sher Edling grants specifically. APT argues that funding for-profit litigation against a private industry — without a clear charitable purpose served by the litigation itself — falls outside the boundaries of what NVF told the IRS it was organized to do when it applied for tax exemption. APT’s filing also notes that NVF’s Form 990 does not separately identify CAF’s grants to Sher Edling on Schedule I; the law firm’s name appears, but the pass-through nature of the relationship is not disclosed in a manner that would enable a reader to trace the funds back to the underlying donors.
NVF has previously defended its activities. In a December 2025 statement reviewed by The Daily Signal, the fund characterized its grantmaking as “lawful charitable activity” and said its administrative services agreement with Arabella was reviewed by independent counsel. The fund did not address the specific dollar figures cited in the IRS complaint or the Senate memo. Sher Edling, contacted at multiple points during the congressional inquiry, declined to release its full client retainer agreements; partial copies obtained through state public-records requests have driven much of the documentary record.
Why It Matters Now
Treasury’s April announcement outlining the Form 990 overhaul did not name NVF, Arabella, or any other organization. But the categories of disclosure flagged for revision — fiscal sponsorship reporting, foreign grant recipients, and the relationship between large public charities and affiliated for-profit service providers — map closely onto the structures documented in the Senate memo and IRS complaints.
The proposed rules would require charities to identify the individual fiscally sponsored projects within them, list the largest recipients of each project’s grants, and disclose any management or service contracts with related entities above a dollar threshold. If finalized as previewed, the changes would require NVF’s next annual filing to break out CAF as a discrete sub-entity, name Sher Edling as a recipient of CAF disbursements, and reflect the terms of NVF’s services agreement with Arabella on its core form rather than in supplemental schedules.
Industry groups across the political spectrum have begun preparing comment letters. The Council on Foundations has signaled that it will press for a higher disclosure threshold, arguing that fully unwinding fiscal sponsorship structures could chill legitimate small-project grantmaking. Watchdog organizations including the Capital Research Center, OpenTheBooks, and Americans for Public Trust have urged Treasury to go further and require donor identification on grants above $250,000 — a step that would, in practice, surface the underlying funders of cases like the climate-deception docket.
What Remains Unknown
The IRS has not publicly responded to either the AAF or the APT complaint, and there is no public docket indicating an active examination of NVF or its fiscally sponsored projects. The agency’s policy is not to confirm or deny audits of specific organizations. Sher Edling’s active litigation calendar — including pending cases in Hawaii, Massachusetts, Minnesota, and the District of Columbia — has not been disrupted by the funding controversy, and the firm’s clients have not publicly reconsidered their retainers.
What the existing record does establish is the magnitude and duration of the transfers, the channels through which they moved, and the absence of disclosure on the principal form the public uses to evaluate tax-exempt activity. Whether the Treasury overhaul forces those transfers into the open on the next filing cycle — and whether the IRS chooses to act on the pending complaints — will determine if the structure documented over the past decade survives the next one.