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Fiscal Sponsors

What is fiscal sponsorship?

A fiscal sponsor is a nonprofit organization that provides fiduciary oversight, financial management, and other administrative services to help build the capacity of charitable projects.” Fiscal Sponsorship: a 360 Degree Perspective (Trust for Conservation Innovation).

What does a fiscal sponsor do?

The role of the fiscal sponsor can include performing many different administrative functions on behalf of the sponsored organization/project, including taking on the responsibility of receiving and administering charitable contributions on behalf of the sponsored organization. Some fiscal sponsors do alot more: handle back-office functions, for instance. It is quite common and perfectly acceptable for the fiscal sponsor to charge an administrative fee for its services, which is usually a percentage of the budget of the sponsored project/organization. The arrangement is consistent with the sponsor's tax exempt status as long as the fiscal sponsor has the discretion to determine how to use the donated funds and is intentionally deploying its own assets to further its mission.

Why choose fiscal sponsorship?

Fiscal sponsorship is often used by newly formed nonprofits that need to raise money during the start-up phase, before they are recognized as tax-exempt by the IRS. Using a fiscal sponsor enables a program or organization that does not itself qualify as tax-exempt to attract funding for its operations that will -- through the fisscal sponsor -  be tax-deductible to donors. Therefore fiscal sponsor arrangements benefit organization/programs that are not tax-exempt by providing a flow-through pathway for revenue that the organization may not otherwise be in a position to receive/attract.

  • As background: donors are not able to claim a tax deduction unless they itemize deductions and donate to an organization that is recognized by the IRS as tax-exempt pursuant to IRS Code Section 501(c)(3). See IRS Publication 557.
  • Additionally, the guidelines of most private foundations explicitly require grantees to be recognized as tax-exempt by the IRS. Consequently, groups that are not formally recognized by the IRS as tax-exempt are generally not eligible for grants from private foundations.

Other reasons:

  • Fiscal sponsorship might be chosen by a newly formed nonprofit that seeks to test-drive its ideas, to determine whether there is a market, or a desire among the donating public, to fund the end product.
  • Some organizations/programs remain in a fiscal sponsorship relationship for a long time, deciding that their mission can be achieved in that structure without creating a new entity.
  • Some organizations - including those that are tax-exempt - find that utilizing a fiscal sponsor to outsource administrative responsibilities, whether back-office tasks, or those relating to fundraising and disbursement of funds, is the right business model for them. This structure might be particularly well-suited for all-volunteer organizations.

Using a fiscal sponsor satisfies IRS requirements as long as the fiscal sponsor maintains the right to decide, at its own discretion, how it will use contributions. Maintaining control over the donated funds is a requirement of a legitimate fiscal sponsor arrangement.

Practice Tips

It's best to memorialize the responsibilities and obligations of both parties in a written agreement between the fiscal sponsor and the sponsored organization. The agreement should specify that the fiscal sponsor is responsible for all legal compliance relating to receiving, reporting, and acknowledging charitable donations, and also describe the administrative fee that the sponsored organization will provide to its fiscal sponsor, as well as any recordkeeping responsibilities that the sponsored project owes the sponsor.

Additional Resources

We encourage you to explore these additional resources on fiscal sponsorship, that include links to sample agreements, tips on finding a fiscal sponsor (or serving as one), and pitfalls to avoid.

Frequently Asked Question

Q. Can we fundraise after we are incorporated, if our nonprofit is not yet tax-exempt?

A. Yes, however, a nonprofit cannot claim to be a tax-exempt 501(c)(3) until the IRS issues a “Determination Letter” of tax-exempt status, therefore, many donors (such as corporate and private foundations) normally will avoid giving donations until a nonprofit receives its Determination Letter. While you are waiting for your nonprofit to be recognized by the IRS as a tax-exempt public charity via the Determination Letter, you might want to consider using a “fiscal sponsor” that will accept donations for your organization, take care of the recordkeeping and accounting requirements (for which your nonprofit would pay a small fee) and give your organization a grant for its activities/operations from the money raised for the project that pass through the sponsor.

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