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”, and the organization that does not have tax-exempt status (and may be incorporated or not) is the “sponsored project”. There are organizations whose mission is to serve as a fiscal sponsor or “incubator” for organizations.
What are the models of fiscal sponsorship?
Model A: Direct Project
Model B: Independent Contractor Project
Model C: Pre-Approved Grant Relationship
Model D: Group Exemption
Model E: Supporting Organization
Model F: Technical Assistance
Model L: Limited Liability Company (LLC)
What does the fiscal sponsor do?
Most funders require a recipient to be recognized by the IRS as tax-exempt. Charitable organizations with 501c3 status are able to accept contributed funds without any tax liability. The role of the fiscal sponsor is to take 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 funders to make tax-deductible contributions to support the activities of the sponsored organization.
Why choose fiscal sponsorship?
Funders are not able to receive a tax-deduction for a contribution to an organization that is not recognized as tax-exempt. Additionally, the guidelines of most private foundations explicitly require grantees to be recognized as tax-exempt by the IRS. Consequently, organizations that are not formally recognized by the IRS as tax-exempt may not be eligible for certain contributions. Having a fiscal sponsor can benefit an organization that is not tax-exempt by providing a pathway for it to receive funding.
How does fiscal sponsorship work for fundraising?
Since the fiscal sponsor is tax-exempt, the funder’s contribution will qualify as a tax-deductible contribution. 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 organization directly. The fiscal sponsor will hold funds for the sponsored organization in a banking account. To get those funds back from the fiscal sponsor the sponsored organization will request a distribution to pay expenses related to the project.
Will funders accept fiscally sponsored projects?
Nationally, fiscal sponsorship is becoming more accepted among funders as a beneficial relationship for charitable organizations that do not have 501(c)(3) status. It is important to check with potential funders to see if they accept proposals from projects with a fiscal sponsor.
Do have to be based in U.S. or be a citizen?
Fiscal sponsorship is generally intended for individuals to be able to apply for funding from U.S. based funding sources who want a charitable tax-deduction from the U.S. Internal Revenue Service (IRS). However, there may be times where projects with international roots may have justification for being part of a fiscal sponsorship program. Please note our following guidelines with regard to international projects:
- We can consider projects for U.S. expatriates working in another country as long as you have a permanent address and bank account based in the U.S.
- We can consider projects from foreign nationals working in the U.S. as long as you have a tax identification number from the IRS, a bank account in the U.S., and your visa status allows you to earn income legally in the U.S. (please note some funders will only support projects made by U.S. citizens so you may still want to have U.S. project leader).
- We can consider projects originating from other countries only if there is a U.S. based project leader who will be the primary point of contact. There will also need to be a U.S. bank account.
What about crowdfunding campaigns?
Most crowdfunding platforms are private corporations so there is no tax incentive for such philanthropy. We encourage our projects to conduct crowdfunding campaigns outside the Fiscal Sponsorship Program Agreement.