Fiscal Sponsorship
If your organization is thinking of applying for funding, in most cases you will need to be recognized by the Internal Revenue Service as a 501(c)(3) tax exempt nonprofit. If you have not yet completed that process but would like the ability to request funding until your status has been approved, another option is to obtain a Fiscal Sponsor.
A Fiscal Sponsor is a non-profit organization with an active 501(c)(3) tax exempt status from the IRS that acts as a guardian of grants and donations for a project or organization that does not have a 501(c)(3) designation. Most such affiliations with fiscal sponsors are rather formal, based on a written contract that spells out who will do what, and some sponsors will extract a fee for this service.
A Fiscal Sponsor is necessary for one good reason: most funders do not make donations to anyone without 501(c)(3) status. That's because tax exempt status, like incorporation, bylaws and other formal designations, inspires confidence in potential donors and funders. It demonstrates that the organization has a legitimate charitable purpose and is accountable to the public. Additionally, 501(c)(3) status provides the donor with the ability to deduct the charitable donation on their income taxes.
Situations that could call for a Fiscal Sponsor include:
- Projects that are short term or temporary that wish to avoid the time and expense of applying for a 501(c)(3);
- Individuals seeking grants for scientific research;
- Organizations that are awaiting, but have not yet received 501(c)(3) status.
A Fiscal Sponsor manages specific grants made to a project. Services include:
- Receives the funds for the designated program from the grantor;
- Approves and allocates funds for program expenses;
- Reports the grant revenue in its annual tax return and audit;
- Produces transaction and balance report for funders.
Advantages of a Fiscal Sponsorship Program
For the Sponsor:
- By sponsoring your grant project, the organization in question may attract new funders to its own programs.
- The grant money you bring in may help to spread the sponsor's own overhead charges and defray some indirect costs.
- If your project is successful, the sponsoring organization shares the honors or benefits from your ideas.
For the Recipient of Sponsorship:
- Increased Support Base- Many more potential donors will become interested in supporting your not-for-profit program if they can qualify for a tax-deductible donation.
- Convenience- Most groups, start-up or otherwise, want to focus their energy on their charitable activities. Having to create and maintain a financial infrastructure can be distracting from the mission of the group.
- Saves Time, Money, and Headaches-The process to qualify for tax-exempt status is lengthy, expensive, and sometimes arduous. Using an independent organization saves the group from having to complete the extensive annual paperwork required by the IRS for a project that won’t be perpetual.
Need more information? Or ready to get started? Click here