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Fiscal sponsorship

Use of a nonprofit's tax-exempt status by an unincorporated group

Summary

Use of a nonprofit's tax-exempt status by an unincorporated group

Fiscal sponsorship refers to the practice of non-profit organizations offering their legal and tax-exempt status to groups—typically projects—engaged in activities related to the sponsoring organization's mission. It typically involves a fee-based contractual arrangement between a project and an established non-profit.{{cite web

Advantages of fiscal sponsorship

Fiscal sponsorship can enable projects to share a common administrative platform with a larger organization, thus increasing efficiency. In addition to legal status, sponsors can provide payroll, employee benefits, office space, publicity, fundraising assistance, and training services, sparing projects the necessity of developing these resources and allowing them to focus on programmatic activities.

Projects may seek fiscal sponsorship for various reasons: an anticipated short lifespan, improved access to funding, increased credibility, and low-cost financial and administrative services. Fiscal sponsors can also assist nascent projects in developing the necessary organizational capabilities to eventually spin off as independent non-profits.

Risks

Fiscal sponsorship arrangements, if not handled carefully, can be vulnerable to the criticism that they serve merely as conduits for the transmission of tax-deductible donations to entities not qualified to receive them.

However, in the last decade, the phenomenon of fiscal sponsorship has become a common ancillary activity for public charities involved in human service, environmental, and artistic endeavors. Non-profit institutions solely devoted to fiscal sponsorship have sprung up across the country, ranging from documentary film sponsors to public health research groups to separate corporations spun off by community foundations.{{cite web

Nevertheless, it is important for both sponsors and projects to understand the exact nature of their relationship.

Sponsors are advised to ensure that the activity of sponsoring a particular project is done in furtherance of its own exempted charitable purposes, as sponsors can be exposed to some liability for the actions of any sponsored projects.
Projects are advised to recognize that projects will be under the control of their sponsor(s), who may be legally responsible for the operations and activities of the project.

The benefits of immediate tax-exempt status and administrative support must be weighed against the lack of autonomy and fees typically charged by the sponsor.{{cite web

Models of fiscal sponsorship

Fiscal sponsorship is practiced with many different models, which offer different benefits.

Table comparing the models

Basic characteristics	Is project a separate legal entity?	Relationship	Charitable donations belong to...	Liability of sponsor to 3rd parties	Ownership of result	Payments shown on IRS returns filed by Sponsor	Payments shown on IRS returns filed by Project	Comments
Direct project	Project belongs to sponsor and is implemented by its employees and volunteers.	No	Employer- Employee	Sponsor	Total liabilities for acts of employees.	Sponsor	990, payroll tax returns	Individual 1040's
Independent contractor project	Project belongs to sponsor but is conducted by separate entity under contract.	Yes	Project- Contract	Sponsor	Varies, may be partial or total.	Sponsor usually	990, 1099 if person	Depends on legal status.
Pre-approved grant relationship	Project applies to sponsor for one or a series of grants, sponsor funds the project only to the extent that money is received from donors.	Yes	Grantor- Grantee	Sponsor	Selection and payment of grantee, plus terms set by funding source.	Project usually	990	Depends on legal status.
Group exemption	Sponsor obtains federal group tax exemption, confers 501(c)(3) status on subordinate projects.	Yes	Subordinate- Affiliate	Project	Only as provided in affiliation agreement.	Project	Annual listing of organizations, no financial information.	990, separate or group return
Supporting organization	Project gets its own 501(c)(3) exemption, but public charity status is based on support of sponsor's purposes.	Yes	Varies	Project	None	Project	None	990
Technical assistance	Project has its own 501(c)(3) exemption but needs help with bookkeeping, tax returns, payroll, management, etc.	Yes	Management- Contract	Project	Only as provided in the contract.	Project	990, if fee charged	990, if fee paid
Wholly owned LLC	Project is incorporated as a limited-liability company and wholly owned by a sponsor 501(c)(3)	Yes	parent-subsidiary	Sponsor	limited liability	sponsor	Yes — financial activity of project is included on sponsor 990	LLC is "disregarded' and files no tax return of its own

References

3rd Edition, Fiscal Sponsorship: 6 Ways To Do It Right, 2019, by Gregory L. Colvin and Stephanie L. Petit, Adler & Colvin, Study Center Press. https://fiscalsponsordirectory.org/?product=fiscal-sponsorship-6-ways-to-do-it-right-3rd-edition

Wikipedia Source

This article was imported from Wikipedia and is available under the Creative Commons Attribution-ShareAlike 4.0 License. Content has been adapted to SurfDoc format. Original contributors can be found on the article history page.

fundraising fiscal-sponsorship-organizations

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