What is Fiscal Sponsorship?
Fiscal sponsorship is a formal arrangement in which a 501(c)(3) public charity sponsors a project that may lack tax-exempt status. This alternative to starting your own nonprofit allows you to seek grants and solicit tax-deductible donations under your sponsor's exempt status.
Models of Fiscal Sponsorship
There are several models of fiscal sponsorship. For practical purposes, the two most-frequently used models of fiscal sponsorship are:
Comprehensive Fiscal Sponsorship
In a Comprehensive Fiscal Sponsorship relationship, the fiscally-sponsored project becomes a program of the fiscal sponsor, and is a fully integrated part of the fiscal sponsor that maintains all legal and fiduciary responsibility for the sponsored project, including its employees and activities.
Pre-Approved Grant Relationship Fiscal Sponsorship
In a Pre-Approved Grant Relationship Sponsorship, the fiscally-sponsored project does not become a program belonging to the sponsor, but is a separate entity responsible for managing its own tax reporting and liability issues. In addition, the sponsor does not necessarily maintain ownership of any part of the results of the project’s work—ownership rights may be addressed in the fiscal sponsor agreement and could potentially result in some form of joint ownership. The sponsor simply assures that the project will use the grant funds received to accomplish the ends described in the grant proposal.
Why choose fiscal sponsorship?
Using a fiscal sponsor enables a project or organization that does not itself qualify as tax-exempt to attract funding for its operations that will, through the fiscal sponsor, be tax-deductible to donors. Therefore fiscal sponsor arrangements benefit projects or organizations that are not tax-exempt by providing a flow-through pathway for revenue that the organization may not otherwise be in a position to receive.
Fiscal sponsorship might be chosen by a newly formed nonprofit seeking to test its ideas to determine whether there is a market or a desire among the public to fund the end product.
Some projects or organizations remain in a fiscal sponsorship relationship for a long time, deciding that their mission can be achieved in that structure without creating a new entity.
Some organizations, including those that are themselves tax-exempt, find that utilizing a fiscal sponsor for technical assistance to outsource administrative responsibilities, whether back-office tasks, or those relating to fundraising and disbursement of funds, is the right business model for them. This structure might be particularly well-suited for all-volunteer organizations. If you are a 501(c)(3) public charity interested in a Technical Assistance model of fiscal sponsorship, please contact The Arts Area for more information.
Every sponsorship is different, but these are the basics:
What are the mutual expectations of a fiscal sponsorship relationship?
What Sponsored Projects Can Expect from The Arts Area:
Eligibility to receive grants and operate as a project of The Arts Area, a nonprofit charity exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code
Ability to receive tax deductible contributions from donors, to the extent permitted by law
Financial and Administrative Services
Recordkeeping and reporting of project finances, including cash receipts and disbursements
Payment of bills and invoices from project funds
Systems to receive online donations (no additional fee for credit card processing)
Acknowledgment letters for donations larger than $250
IRS 990 tax filing
Special insurance coverage as required by programs, events, and contracts (at additional cost)
Human Resources Services
Tracking and reporting for independent contractors (EDD reports, IRS 1099s)
Access to a staff member for one-on-one consultation on project development issues
Training and workshops
Networking and peer learning opportunities
Limited use of available conference room and event space at no cost, on a first-come, first-served basis
Visibility in The Arts Area’s annual report and on our website
What The Arts Area Expects of Our Projects:
Effective pursuit of clear project aims, in a collaborative and collegial alliance with The Arts Area’s program, finance, and administrative team members
8% administrative charge on all project revenues from private sources (such as grants or contributions from foundations, individuals, or corporations)
11% administrative charge on all project revenues from public sources (such as grants from and contracts with government agencies)
Active Advisory Board
Recruit an active advisory board to help guide strategic planning, program development, resource development, staffing leadership development and financial management of the project, provide counsel and oversight of project programmatic and administrative activities, subject to the ultimate direction of the The Arts Area Board of Directors
Provide The Arts Area a roster of active advisory board members
Close communication with The Arts Area on issues such as current programs, special events, fundraising activities, and budget changes
Notification to The Arts Area staff of potential risks or liability issues (pending layoffs or terminations, accidents or injuries, large events, long-distance travel by project participants, etc.)
Completion of semi-annual Project Reports (reminders and forms will be provided)
Compliance with all policies and procedures of The Arts Area
Submission of all contracts and grant agreements to The Arts Area for review and signature
Submission of grant proposals for review before submitting to funders
Adherence to all federal, state, and city rules for lobbying and political activity
Visible communication that you are a project of The Arts Area on all public materials such as websites and brochures
Maintain a membership in good standing with The Arts Area
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Does a fiscal sponsorship sound like a good option for your project or organization?
The next step is to complete The Arts Area Fiscal Sponsorship Proposal Narrative form.