What is Fiscal Sponsorship?
Fiscal sponsorship is an arrangement in which one entity agrees to accept and manage funds for another. Within the nonprofit sector, fiscal sponsorship usually occurs when a group or an individual wishes to receive tax-exempt contributions for charitable or community-focused activities without building a full organizational infrastructure or receiving formal 501(c)3 status.
What Does a Fiscal Sponsor Do?
A fiscal sponsor...
- typically only sponsors projects with a charitable purpose consistent with the sponsor’s own mission.
- commits to supporting the charitable activities of individuals or unincorporated groups by extending its tax-exempt status to include them, allowing donors to make tax-exempt contributions.
- receives and administers charitable contributions on behalf of the sponsored organization.
- accepts significant legal and financial risk, so it is critically important that fiscal sponsorship be offered by organizations that are well-informed of the risks and structured to manage and accept those risks.
- typically charges an administrative fee for its services, usually a percentage of the budget of the sponsored organization or program.
Why Does it Help Me?
- Ability to receive tax-deductible donations. A donor that contributes to a project through a fiscal sponsor with 501(c)(3) status may normally deduct the contribution as a charitable contribution deduction. Those funds will then be directed to the project to assist the project with running its programs.
- Ability to get off the ground faster. 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.
- Wider base of support. If the organization that acts as a fiscal sponsor has a solid track record with foundations and other funders, this may benefit a “project” of that organization. Projects that don’t already have pre-existing relationships with funders may be in a better position to secure some grants or charitable donations if they have a fiscal sponsorship relationship with a reputable charity.
- Technical assistance and administrative support. Many sponsors may also provide projects with additional support such as insurance, payroll and accounting services, office space, publicity, capacity building or fundraising assistance. This support not only makes it possible for projects to focus more time and energy on their missions and less on administrative matters, but, due to economies of scale, may also be provided at lower cost to a project than the project might have to pay if it incorporated on its own.
- Potentially Lower Insurance Costs. Often, sponsors will be able to obtain lower insurance rates than would be available to a small start-up nonprofit corporation, and these savings can be passed along to the project.
How Do I Find a Fiscal Sponsor?
There are a range of organizations that offer fiscal sponsorship throughout the United States. Provided below are some useful tips and links to find fiscal sponsors in your neighborhood.
- Remember to look for nonprofits that have missions similar to yours. You might start with your current affiliations. Make a list of the professional societies, educational associations and institutions, religious organizations, social and recreational clubs, and other groups with which you are already associated, including employers.
- The Fiscal Sponsor Directory allows you to search by state, service category, or keyword for nonprofit fiscal sponsors. Profiles include eligibility requirements, fees, services, and types of projects supported. The site also provides statistics and resources on fiscal sponsorship.
- The National Council of Nonprofits also provides very helpful suggestions for Fiscal Sponsorship Resources including further tips and tools for finding a fiscal sponsor.
When approaching your prospects, be ready to give a verbal or written proposal that explains:
- Your project: Why it’s needed, and its goals, objectives, method, evaluation, staffing, and budget. This is similar to a grant proposal.
- How it advances the nonprofit’s mission.
- Other ways the nonprofit can benefit from being associated with your project.
Other Useful Links:
- For those that are more visually stimulated, this video titled “What You Need to Know About Fiscal Sponsorships” can help give a more in depth look at the world of fiscal sponsorships.
- A White Paper: On Comprehensive Fiscal Sponsorship provides a detailed view of the ins and outs of fiscal sponsorship.
- What not to do when finding the fiscal sponsor that’s right for you: Fiscal Sponsorship: Six Ways to Do It Wrong