Fiscal Sponsors

What is Fiscal Sponsorship?

Fiscal sponsorship refers to a relationship in which one organization shares its tax-exempt status with another. In this relationship the organization that has tax-exempt status is the "fiscal sponsor;" the organization that (usually) does not have tax-exempt status (and may be incorporated or not) is the sponsored organization (or “fiscal agent”). Typically the sponsored organization seeks out a fiscal sponsor that has a similar or consistent mission. There are some organizations whose missions are to serve as fiscal sponsors or "incubators" of other nonprofit programs. Read about finding fiscal sponsors.

What Does the Fiscal Sponsor Do?

The role of the fiscal sponsor can include performing many different administrative functions on behalf of the sponsored group, and often includes taking on the responsibility of receiving and administering charitable contributions on behalf of the sponsored organization. Since the donations are made directly to the fiscal sponsor, the arrangement enables donors to make tax-deductible contributions to support the activities of the sponsored organization. In many sponsorships the fiscal sponsor charges an administrative fee for its services, usually a percentage of the budget of the sponsored organization or program.

Why Choose Fiscal Sponsorship?

Donors are not able to receive a deduction for a contribution to a nonprofit that is not recognized as tax-exempt. (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 may not be eligible  for certain contributions. Having a fiscal sponsor can benefit a group that is not tax-exempt by providing a pathway for it to receive funding.

• Fiscal sponsorship can be used by newly formed charitable organizations that have the need to raise money right away, before they are recognized as tax-exempt by the IRS.
• Fiscal sponsorship might be chosen by a newly formed nonprofit that seeks to test-drive its ideas, or operate less formally than what is required of groups that make the commitment to apply for tax-exempt recognition from the IRS.
• Some organizations remain in a fiscal sponsorship relationship for a long time, deciding that their mission can be achieved in that structure without the need to be recognized by the IRS as an independent tax-exempt entity.
• Finally, 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.

How Does Fiscal Sponsorship Work for Fundraising?

A newly formed nonprofit finds another nonprofit (one that is already tax-exempt and generally has a similar mission) that agrees to accept the administrative responsibility of receiving charitable gifts on behalf of the sponsored organization. The fiscal sponsor must first determine that serving as a fiscal sponsor is consistent with its mission (and does not jeopardize its own tax-exempt status). The sponsored organization arranges with the fiscal sponsor to receive grants or contributions on its behalf. This arrangement allows the sponsored organization to solicit contributions to support its programs, with the understanding that the donation will be made to the fiscal sponsor, not to the sponsored program/organization directly. Since the fiscal sponsor is tax-exempt, the donor’s contribution will qualify as a deductible contribution.

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 the contribution, and in fact uses it consistently with its own tax-exempt status. Generally there is no question but that the sponsor will grant the contribution (minus an administrative fee if one applies) to the sponsored organization - but it could decide to use the funds elsewhere. Maintaining such control over the donated funds is a requirement of a legitimate fiscal sponsor arrangement.

Practice Tips

Fiscal sponsorships should be memorialized 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.

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