Fiscal Sponsorship Information
Fiscal sponsorship is an agreement that allows a nonprofit without tax-exempt status to act as if they do. They can act this way because they are sponsored by a nonprofit that has its’ own 501(c)3 status. Essentially, it is a way for a public charity to begin accepting tax-deductible donations before they have been granted their own 501(c)3 status.
How It Works
In a fiscal sponsorship, the “Sponsor” accepts donations on behalf of the “Project”. The donations are tax-deductible because they are legally made to the Sponsor organization. This makes the donations tax-deductible because they are made to an organization that has tax-exempt status.
The new organization is called the project because, from a bookkeeping perspective, they are treated as a project by the sponsor. All projects have their own set of books, so the Project’s finances are kept completely separate from the sponsor’s other projects.
The Typical Workflow for a Project
They find a sponsor whose mission aligns with theirs.
Both parties sign a binding agreement. Legally, the sponsor is responsible for the transactions, so they need to be sure the donations are consistent with their mission statement.
Donations are actually made to the sponsor.
The sponsor transfers the funds to the project's banking accounts where they become available to the project organization.
Sponsors typically charge between 5 and 10% depending upon how many services they provide.
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Why Use a Fiscal Sponsor?
Starting a 501(c)(3) can take 6–12 months and thousands of dollars. Fiscal sponsorship offers a "plug-and-play" alternative.
The Benefits
You can start accepting tax-deductible donations almost immediately.
Being associated with a respected organization can help you win grants that are usually off-limits to new organizations.
The project can focus on its mission without the distractions of obtaining its own exempt status.
The Trade-offs
Because the sponsor is legally liable, they have the final say on how funds are spent.
The Project has to pay a fee for this service. This additional expense will decrease the funds they have available for their programs.
The project loses some of its brand identity because of the sponsor's role in accepting the donation.
Is it right for you?
Fiscal sponsorship is ideal for new organizations, seasonal organizations, or those that choose not to develop that expertise themselves. Whatever your reasons and decisions are, the option of using a Fiscal Sponsor is worth a discussion as to if it is a good fit for your organization.
