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- What is fiscal sponsorship?
- How do I find a fiscal sponsor?
- What is the difference between a fiscal agent and a fiscal sponsor?
- How do I ensure that my fiscal sponsorship agreement is solid?
- What do funders think about fiscal sponsorship?
Fiscal Sponsorship is an agreement through which a project or organization without tax-exempt status – but which could qualify for it - partners with an existing tax-exempt organization in order to receive donations and grants.
The IRS has been more closely scrutinizing these types of arrangements in recent years. Any and all grant funds must go directly to the sponsor 501(c)(3) organization.
The fiscal sponsor will usually take an administrative fee (typically between 7% and 15% of the sponsored organization's funds) to cover the costs of administering the sponsored organization's finances. The fiscal sponsor is responsible for ensuring the funds are administered appropriately and for reporting to the IRS.
More information on fiscal sponsorships can be found in the Oregon Nonprofit Corporation Handbook, in Gregory L. Colvin’s book, Fiscal Sponsorship: Six Ways to Do it Right, and at the Tides Center website.
Any nonprofit that the IRS recognizes as exempt under section 501(c)(3) can be a fiscal sponsorship. If you are already working closely with a 501(c)(3) organization, you may want to consider asking them to be your organization's fiscal sponsor. It is best for organizations to find a fiscal sponsor that has a similar mission or area of interest.
For more information on finding nonprofit organizations in your community, please refer to Question 6 under Starting a Nonprofit.
The following are additional resources that may help you find a fiscal sponsor:
The Tides Center - A major fiscal sponsorship resource that also provides advice.
The Fiscal Sponsorship Directory - A searchable directory of potential fiscal sponsors as well as other helpful information.
The Charitable Partnership Fund – Provides fiscal sponsorship to organizations in Oregon.
According to the Oregon Nonprofit Corporation Handbook, the term "fiscal agent" implies to auditors and the IRS that the sponsored project has the right to control the sponsoring organization. The roles must be reversed in order to comply with tax exemption rules: the sponsoring organization must control the sponsored project and the project must further the organization’s exempt purposes.
In order to avoid confusion, it is better to use the term fiscal sponsor because it makes clear that the sponsor organization has agreed to financially support the sponsored project.
For additional information about fiscal sponsorship and samples of approved sponsorship arrangements, please read this document issued by the IRS.
It's in the best interest of all parties involved if fiscal sponsorship agreements are set up appropriately. Some things to keep in mind are:
- The fiscal sponsor must be a 501(c)(3) organization as recognized by the IRS
- The fiscal sponsor cannot be an organization whose tax-exempt status is pending
- The sponsored project must be able to qualify for exemption under section 501(c)(3), even if the project has no intention of ever applying for it
- The fiscal sponsor must have complete discretion and control over any funds given to the sponsored project. If donations or grants are viewed as pass-through funds (defined below), the fiscal sponsor’s tax-exempt status may be placed in jeopardy
Pass-through arrangements are instances in which a donor gives money to the project through its fiscal sponsor but strips the sponsor of control over the funds. For example, the donor restricts the use of the funds to the point that the fiscal sponsor can only use them for the sponsored project.
If an individual or entity makes a pass-through grant or donation to the fiscal sponsor, the IRS treats this as if the donation or grant is made directly to the project. And since the project is not tax exempt, the donation or grant is not tax deductible.
Opinions and treatment of fiscal sponsorship vary by funder. Before entering into a fiscal sponsorship agreement, check with any potential funders to make sure they understand your arrangement and to see if they have special guidelines for you to follow.
Also, take into account that if a fiscal sponsor has already applied for funding from one funder, the sponsored project may not qualify for the same funding and vice versa.