What is Fiscal Sponsorship
In the simplest terms, the fiscal sponsor commits to supporting the charitable activities of individuals or groups by extending its tax-exempt status, thus enabling donors to make tax-exempt contributions to support their work. The fiscal sponsor accepts financial, programmatic and legal LIABILITY for the charitable work being done by the group or individuals.
Fiscal sponsorship is commonly used when an emerging program or an individual, like an artist wants to secure funding from sources that give only to nonprofit organizations with IRS tax-exempt status. These can include foundations, government agencies, corporations, or individual donors who wish to receive tax deductions in return for their contributions. To be considered exempt, an organization must hold a current 501(c)(3) certificate from the IRS.
According to standard principals and law, the charitable activities of the programs and projects sponsored by a fiscal cal sponsor must be consistent with the fiscal sponsor’s charitable purposes and activities. Having a nonprofit fiscal sponsor does not make sponsored program “nonprofit” or “tax-exempt” – ONLY the IRS can make a tax-exempt ruling. It is important to note that the sponsor must exercise control over the funds that it receives on behalf of the project. In fact, the sponsor may lose its tax- exempt status for failure to exercise sufficient control, permitting those funds to be used in a non-charitable manner.
At this time, there are only a handful of organizations in the country that have a dedicated practice of providing fiscal sponsorship services to charitable efforts. However, small organizations that prefer not to attempt the involved and costly process of securing tax-exempt status themselves may decide instead to contract with a nonprofit fiscal sponsor to extend tax-exempt status to their project.
Fiscal sponsorship offers a great advantage for those who are launching new endeavors, where the long-term viability of the project is yet to be determined. Operating under a fiscal sponsor allows community leaders to begin programs and services for a trial or incubation period prior to deciding to file for independent incorporation. Similarly, programs who have been operating informally for some time and are beginning the process of incorporation, may want to apply for charitable funds through a fiscal sponsor while that incorporation process is under way. Others choose to remain fiscally sponsored for a longer period of time, making use of the nonprofit’s infrastructure to support their projects and focus on their mission.
For a checklist/flowchart to help you decide whether fiscal sponsorship is right for your emerging project click the link below
FACTS ABOUT FISCAL SPONSORSHIP ACROSS THE COUNTRY:
GROWTH: Follows the rise of nonprofits
Before the 1950s, only 152,000 501(c)(3)s were operating in the United States. The pace picked up in the ’70s and ’80s with roughly 190,000 new ones in each decade. But numbers of brand-new nonprofits almost doubled — to 372,000 — in the 1990s. By 2008, there were 1.4 million in the nation. On a much smaller scale, fiscal sponsorship has followed that trajectory, starting in the late 1960s and 1970s when community services began to soar as the free-services-for-all concept took hold in California and spread throughout the nation.
The number of new fiscal sponsors jumped in the 1990s. That’s when 39 of the sponsors in this directory — more than double the number of startups in the previous two decades — took on their first project. The pace of new fiscal sponsors has accelerated, with 54 or 37% forming since 2000. The field of fiscal sponsorship is growing, but its main impact is qualitative.
SCOPE: 7,988 projects
The role of the fiscal sponsor also has taken off. Though the numbers of fiscal sponsors and the projects they host are minuscule compared with the number of U.S. nonprofits, they are a factor in the improving quality of nonprofit management, a trend that is acknowledged throughout the sector as awareness of fiscal sponsorship’s benefits spreads.
These 146 fiscal sponsors are home to 7,988 projects, which an educated estimate suggests charitable funding of up to $1 billion. More than a quarter of the agencies sponsor 1 to 5 projects, while 15% sponsor 51 to 100 projects.
Congressional District Programs Inc. sponsors 1,000 projects, the most of any fiscal sponsor in the directory. The 10 largest combined sponsor 3,916 projects, half of the projects represented in this directory.
A hidden efficiency for the nonprofit sector shows up in the projects-to-sponsor ratio. Projects come under their sponsor’s board of directors; they don’t need their own board to operate. A truism of community service is that many board members wear multiple nonprofit hats. If each of the thousands of projects had to have its own board of directors, that would mean 20,000 to 50,000 civic-minded people in communities across the country would have to stretch themselves ever thinner.
Fiscal sponsorship puts all these projects under the sponsors’ existing boards of directors, taking pressure off the pool of primarily volunteer professionals.
ELIGIBILITY: Aligned missions
Fiscal sponsorship must be largely a labor of love, because 133 or 91% of the sponsors in this directory say “aligned mission/values” is chief among their eligibility criteria. The second most-cited eligibility criterion is “geographic,” with half of the sponsors requiring their projects to operate nearby, in the same metropolitan area, state or region.
PROJECTS: Arts is tops
Out of 20 service choices on the survey, five sponsors said they accept projects in all categories. More than a third will sponsor projects in at least a dozen service categories.
Arts and culture, hands-down, is the most popular project category, with 108 — 74% — of the sponsors willing to take them on. And of these, film and video projects are a favored subcategory.
Education is the next largest category of service with 76, followed by children, youth and families at 74 and youth development 71.
FEES: Mostly 5%-10%
About 30% of these fiscal sponsors charge fees of 5% or less of a project’s revenues, and half charge 6% to 10%. Only 12 charge more than 10%, in most cases to handle government-funded projects, which can require adhering to federal audit standards. Some sponsors have sliding-scale fees, depending on a project’s revenues; others will negotiate the fee.
If you are interested in applying to Fusion Partnership, Inc. for Fiscal Sponsorship, please see our website for a Program Application.
For more information:
Greg Colvin’s book:, Fiscal Sponsorship: Six Ways to Do It Right
www.tidescenter.org and check out the link to National Network of Fiscal Sponsors
others fiscal sponsors: